The effects of increased Korea Treasury Bond issuance on the yield curve

This study examines the impact of the sharp increase in Korea Treasury Bond (KTB) issuance following the COVID-19 crisis and analyzes the effects of bond buybacks as a policy countermeasure. Using a dynamic Nelson-Siegel model with macroeconomic factors, we estimate the effects of changes in the bond supply on the yield curve. Empirical results show that a KRW 1 trillion increase in KTB issuance raises yields by approximately 2.5 to 2.9 basis points, with stronger effects observed in the post-COVID period and in medium- to long-term maturities with weaker demand. Conversely, emergency buybacks reduce yields by about 1.9 to 2.1 basis points, with similar maturity-dependent dynamics. These findings highlight the importance of demand conditions in amplifying the interest rate effects of government bond supply shocks.