Amid the global bond market turmoil, South Korea reduced its government bond issuance, and Japan stated it would appropriately control its total annual government bond issuance.

As the global bond market sell-off continues to spread, Asia's two largest economies have taken action to stabilize their domestic bond markets by reducing the supply of government bonds.

South Korea's Ministry of Finance announced on October 1 that it would reduce its government bond issuance for the month by 5 trillion won to 12 trillion won, and explicitly stated that it would consider further reductions in government bond issuance if necessary. Meanwhile, Japanese Prime Minister Sanae Takaichi stated that she would comprehensively consider both the initial budget and supplementary budgets to "appropriately control the total annual issuance of government bonds."

Both countries' statements point in the same direction: under pressure from global yields hitting record highs, they are proactively reducing supply to alleviate market pressure. Currently, the yield on the 10-year US Treasury bond has exceeded 5.3%, reaching a new high since 2002; the yield on the 30-year UK government bond has risen above 6%, the first time since 1998.

South Korea: Utilizing excess tax revenue to reduce the issuance of government bonds across all maturities.

According to the latest reports from local media, the South Korean Ministry of Finance has identified higher-than-expected tax revenue as the source of funding for this round of cuts.

The statement shows that the reductions are distributed by maturity as follows: 1 trillion won for 2-year government bonds, 800 billion won each for 3-year and 5-year bonds, 700 billion won each for 10-year and 30-year bonds, and 200 billion won for 50-year bonds.

Regarding the actual issuance arrangements in October, 12 trillion won will be issued through competitive bidding by primary dealers, and another 500 billion won will be issued through bond swaps. In addition, the government plans to conduct repurchase operations of approximately 3.5 trillion won on 2-year, 3-year, 5-year, and 10-year government bonds that have passed their original issuance date but have not yet matured.

Market analysts expect the government to further reduce the issuance of government bonds of all maturities in November and December, with the total supply reduction for the year potentially exceeding 10 trillion won.

Japan: Sanae Takaichi pledges to control government bond issuance while responding to currency controversy.

In Japan, Prime Minister Sanae Takaichi's remarks covered two main themes: national debt management and exchange rate.

According to a Reuters report on October 1, Sanae Takaichi stated that regarding government bond management, she will "take into account both the initial budget and the supplementary budget, and appropriately control the total annual issuance of government bonds."

On the issue of exchange rates, Sanae Takaichi clearly stated that she had "informed President Trump that the undervaluation of the yen is a problem," while emphasizing that "the foreign exchange market is determined by a variety of factors" and that "Japanese economic policy is not intended to manipulate the foreign exchange market." She further explained, "Our policies aim to enhance the competitiveness of the Japanese economy, which will strengthen market confidence in the yen."

In addition, Sanae Kaoshi stated that the food consumption tax reduction measures are expected to be reflected in sales prices.

Global bond markets: Multiple pressures converge, yields hit multi-decade highs

On October 1st, the yield on the 10-year US Treasury note rose 4 basis points to 5.348%, breaking the 2007 high and reaching a new high since 2002; the yield on the 30-year US Treasury note also hit its highest level since 2002. The yield on the 30-year UK government bond rose to 6%, the first time since March 1998. French government bond yields hit an 18-year high, and the Franco-German interest rate spread widened to its widest level since June 2012. The yield on the 10-year Japanese government bond also rose to 3.11%.

The yield on the Bloomberg Global Aggregate Government Bond Total Return Index has risen to its highest level since 2000, with global bonds having lost 2.7% this year.

Factors driving this round of sell-off include: escalating tensions in the Middle East pushing up energy prices, persistently high inflationary pressures, global government debt surpassing $40 trillion for the first time, and continued expansion of fiscal deficits in various countries. Gilles Moec, chief economist at AXA Group, stated, "Even if some key thresholds have been breached, long-term yields may not have reached a self-stabilizing level."

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