Citi Research has raised its forecasts for South Korea's government bond issuance in 2026 and 2027, attributing the increase to the government's newly announced Future Response Fund. According to economist Kim Jin-wook at Citi, total Korea Treasury Bond issuance is projected to be 221 trillion won (approximately $159 billion) for 2026 and 211 trillion won (approximately $152 billion) for 2027. These figures represent an upward revision of 5 trillion won for 2026 and 13 trillion won for 2027 from previous estimates.
This upward revision is primarily due to the government's decision to prioritize allocating surplus tax revenue to the Future Response Fund rather than using it to reduce bond issuance. Citi estimates that the 2027 budget will have total expenditures of 820 trillion won, a 12.7% increase from the 2026 original budget. This includes an estimated 40 trillion won in expenditures for the Future Response Fund. Excess tax revenue for 2027 is provisionally assumed to be between 60-70 trillion won, with the fund potentially reaching a maximum scale of 100 trillion won.
While South Korea's Ministry of Planning and Budget announced detailed operational plans for the Future Response Fund, indicating funding primarily from excess tax revenue, fiscal surplus residuals, and operational returns, Citi believes this will limit the room for bond issuance cuts. The 2027 bond issuance figure of 211 trillion won is expected to comprise 110 trillion won in net redemptions and 101 trillion won in net issuance. Citi also anticipates a decrease in the proportion of ultra-long maturity bonds (20 years or longer) in 2027, with other maturities expanding their share.
Despite the overall increase in bond issuance, Citi assesses the likelihood of a second supplementary budget in the second half of 2026 as low. Earlier reports indicated that South Korea plans a record 232 trillion won ($167.2 billion) of bonds in 2026 to finance an 8.1% spending jump, with net new issuance amounting to 115.7 trillion won. This figure surpasses the 2025 total of 231.1 trillion won.
Separately, the Korean won has strengthened, falling into the 1,370-won range against the dollar, and yields on Korean treasury bonds have fallen across all maturities. This is partly due to strong net buying of bond futures by foreign investors. A stronger won could ease inflationary pressure from import costs, giving the Bank of Korea more policy maneuverability.
