Extra Budget Pressures Bonds

Futures are lower in South Korea, 10-year future last down 19 ticks at 126.62, giving back after four days of gains. Bonds pressured after South Korea passed a budget that entails KRW 9.9tn extra issuance. 3-Year future better supported, down around 3 ticks, still benefitting from the BoK's decision to reduce MSB auctions by 50%, and the implied bias towards a steeper yield curve.

• Earlier in the session South Korea's parliament passed a KRW 14.9tn extra budget, the fifth pandemic relief package. The government plans to issue KRW 9.9tn in bonds to fund the bulk of the extra spending. The budget would raise the government's debt ratio to 48.2% of Korea's gross domestic product, up from 47.3% based on the initial annual spending plan. Elsewhere the BoK announced an extension to stimulus measures, the special loans programme to SME's will be prolonged by 6 months.
• It was reported earlier that North Korea fired two unidentified projectiles from around South Hamgyong Province this morning, this is the first missile test from North Korea in over a year. South Korea and the US have been holding military exercises recently, this will provide an early test to US President Biden's policy towards North Korea.
• South Korea reported 430 new COVID-19 cases Thursday, stubbornly above 400 as warm weather loosens observance of social distancing regulations. The total caseload is now above 100k.
• Stocks are expected to be supported today, and could see foreign inflows, which in turn could be weighing on bonds. The National Pension Service's fund management committee announced it was to discuss increasing its target for local stock holdings to as much as 20.3% from the current 14.8-18.8%, the plan is expected to be approved at the committee meeting Friday.
• Meanwhile, in corporate issuance Korea Housing Finance Corp announced plans to sell about KRW 40t won of ESG notes at home and abroad this year, KHFC sold a total of 46.5t won of ESG bonds last year. KHFC said it intends to sell KRW 10t each quarter.