As major countries recently shift their bond issuance strategies away from long-term bonds toward medium- and short-term maturities, there are calls for South Korea to reassess its current treasury bond issuance structure, which is heavily centered on 30-year bonds. With demand from insurance companies—the core investors in ultra-long-term treasury bonds—slowing down, analysts argue that the appropriate issuance mix should be determined by considering maturity-specific demand, funding costs, and funding stability. Proposals have also been made to introduce short-term treasury bonds with maturities of one year or less to tap into investment demand from money market funds (MMFs) and other short-term capital markets.
According to a report released on the 26th by the Korea Capital Market Research Institute, researcher Jung Hwa-young stated in an opinion piece titled "Recent Changes in Major Countries' Treasury Bond Issuance Strategies and Their Implications" that "as central banks in major countries reduce their holdings of government bonds amid high fiscal demand, the volume of bonds that private investors must absorb has increased." She added, "In particular, with weakening investment demand for long-term bonds and rising long-term treasury yields, governments around the world are adjusting issuance proportions by maturity to reflect these changing demands."
Researcher Jung noted that among major countries, the United States is addressing its increased fiscal funding needs primarily through medium- and short-term bonds. Data from U.S. Treasury auctions show that the share of 2-, 3-, and 5-year bonds rose from 55.5% in 2022 to 61.9% between January and August this year. By increasing issuance of short-term treasury bills (T-bills) with maturities of one year or less, supported by demand from MMFs and others, the share of short-term bonds in total outstanding U.S. Treasury debt reached 22.8% as of the end of last month. However, overreliance on short-term instruments could increase refinancing risks and raise interest cost burdens due to rising interest rates.
Japan and the United Kingdom are also restructuring their bond issuance frameworks in response to declining demand for long-term bonds. Japan is reducing issuance of 20-, 30-, and 40-year bonds amid reduced purchases by the Bank of Japan and slowing demand from life insurance companies for ultra-long-term bonds. In the UK, as demand for long-term bonds from defined benefit (DB) pension schemes weakened, the share of long-term fixed-rate government bonds was lowered from 28.5% in the 2022–2023 fiscal year to 9.1% in the 2026–2027 fiscal year, while the proportion of medium- and short-term bonds was increased.
South Korea is similarly experiencing a slowdown in additional purchase demand from insurance companies, which were once the primary buyers of ultra-long-term bonds. Researcher Jung explained that this trend stems from insurance companies significantly extending their asset durations and improvements in solvency ratios due to rising market interest rates, reducing the need for further purchases of ultra-long-term bonds.
Amid these developments, Researcher Jung commented on the government's decision to reduce the share of 30-year bond issuance by 8 percentage points compared to last year this year, calling it "a measure aligned with changed demand conditions." However, she emphasized that since 30-year bonds account for the largest share—24%—of total treasury bond issuance, "it is necessary to seek an appropriate issuance mix by weighing both the benefits of enhancing long-term funding stability and the associated funding cost burdens."
Proposals have also been made to introduce short-term treasury bonds to diversify the investor base. Researcher Jung stated, "South Korea does not issue treasury bonds with maturities of one year or less, meaning it fails to fully utilize investment demand from institutional investors managing short-term funds such as MMFs." She added, "Once issuance and trading of short-term treasury bonds become established, it could also help create conditions for introducing variable-rate government bonds linked to short-term interest rates."
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