(ATTN: UPDATES with bond market reaction in paras 5-8)
SEOUL, Jan. 18 (Yonhap) -- South Korea plans to sell similar amounts of state bonds over periods in a bid to minimize its impact on the government bond market as it plans to use debt sale to finance an extra budget, a senior government official said Tuesday.
The finance ministry is working on another round of an extra budget of some 14 trillion won (US$11.7 billion) to support small merchants hit hard by the COVID-19 pandemic.
"The issuance of Treasury bonds will be distributed as evenly as possible in a bid to minimize the impact of debt sale on the government bond market," Second Vice Finance Minister Ahn Do-geol said.
He said the ministry plans to take timely actions if volatility in the bond market increases.
Bond yields fell Tuesday after the second straight session of spikes.
Yields on three-year government bonds declined 2.1 basis points to 2.127 percent after Ahn made the remarks. Bond prices move inversely to yields.
Bond yields sharply rose in recent sessions due to the central bank's latest rate hike and the extra budget plan.
Yields on three-year Treasury bonds spiked 10.4 basis points to 2.148 percent Monday, the highest since June 21, 2018.
Last week, the Bank of Korea (BOK) raised the key interest rate by a quarter percentage point to 1.25 percent. It marked the third rate increase since the BOK made its first pandemic-era rate hike in August last year.
The extra budget plan comes as the government is estimated to have logged an additional 10 trillion won in excess tax revenue last year amid the economic recovery.
The envisioned budget will be first financed with debt sale, as the excess tax revenue can be used only after the government settles last year's state accounts in April.
The move came as the ruling Democratic Party vocally raised the need for another extra budget to support affected merchants ahead of the March presidential election.
Finance Minister Hong Nam-ki told reporters Monday the government may not fully use the excess tax revenue to repay debt.
South Korea's 2022 national budget stood at a record 607.7 trillion won.
Based on the state budget, the national debt is expected to reach 1,064.4 trillion won this year, an amount equivalent to 50 percent of the gross domestic product, according to the finance ministry. It will mark the first time the debt will exceed the 1,000 trillion-won mark.
The ministry set the yearly limit of its government debt sale at 166 trillion won this year, down 14.5 trillion won from the 2021 bond issuance.
S. Korean firms in delicate balancing act over U.S. economic framework
(News Focus) BOK expected to seek further rate hikes but place more weight on growth: experts
Yoon to seek small gov't stance to spur economic growth
Having passed major regulatory hurdle for Intel deal, SK hynix eyes economies of scale, sharper competitive edge
Pandemic, election to put pressure on 2022 economic policy implementation