Retail government bonds draw strong demand on pension boost, with W230b planned for October

The Ministry of Economy and Finance said Wednesday it plans to issue 230 billion won ($169 million) worth of retail investor government bonds in October.

The ministry said it decided to maintain the same issuance volume as the previous month after September subscriptions reached 258.5 billion won — a 112 percent subscription rate that exceeded the original 230 billion won target — driven by the retirement pension-type retail government bond introduced last month.

By tranche, the ministry will issue 2 billion won in three-year coupon bonds, 3 billion won in three-year compound-interest bonds, 30 billion won in five-year bonds, 150 billion won in 10-year bonds and 45 billion won in 20-year bonds. Compared with September's plan, the five-year and 20-year tranches were each reduced by 20 billion won while the 10-year tranche was increased by 40 billion won. The three-year tranche remains unchanged.

Coupon rates will be based on the winning bid rates from September's issuance of government bonds with the same maturities: 3.875 percent for three-year bonds, 4.275 percent for five-year bonds, 4.510 percent for 10-year bonds and 4.520 percent for 20-year bonds.

Spread premiums of 0.05 percentage points, 0.28 percentage points and 0.43 percentage points will be added to the five-year, 10-year and 20-year tranches, respectively. No spread premium will be applied to the three-year tranche, taking into account yields on comparable financial market products.

If held to maturity, the pre-tax returns on October's retail government bonds are approximately 11.6 percent for three-year coupon bonds, 12.1 percent for three-year compound-interest bonds, 23.6 percent for five-year bonds, 59.7 percent for 10-year bonds and 162.8 percent for 20-year bonds. The average annual yields are 3.9 percent, 4.0 percent, 4.7 percent, 6.0 percent and 8.1 percent, respectively.

If total subscriptions fall within the issuance limit for each tranche, all orders will be filled in full. If subscriptions exceed the limit, all applicants will first receive a uniform allocation of up to 3 million won ($2,210), with any remaining volume distributed in proportion to subscription amounts.

The subscription period runs from Oct. 8 to Oct. 15, with applications accepted on business days from 9 a.m. to 4 p.m. Dedicated accounts for retail investor government bonds are available through Mirae Asset Securities.

Subscriptions for 10-year and 20-year bonds through retirement pension accounts — defined contribution and individual retirement pension plans — are available at Shinhan, Hana and NH NongHyup Bank, as well as Mirae Asset Securities, Samsung, Korea Investment, KB and NH Investment & Securities.

Retail investors may also apply in October for early redemption of retail government bonds issued between June 2024 and September 2025. Early redemption entitles holders only to the principal and interest calculated at the original coupon rate at the time of purchase; the compound interest including the spread premium and the benefit of separate taxation on interest income will not apply.

The early redemption application period also runs from Oct. 8 to Oct. 15. The redemption limit is 1.38 trillion won based on purchase amounts, with the redemption date set for Oct. 20.