As a global bond selloff continues to spread, two of Asia's largest economies have taken action in quick succession, seeking to stabilize their domestic debt markets by reining in government bond supply.

South Korea's finance ministry announced on October 1 that it would cut government bond issuance for the month by 5 trillion won from its original plan, bringing the total down to 12 trillion won, and explicitly stated it would "consider further reductions in government bond issuance if necessary." At the same time, Japanese Prime Minister Sanae Takaichi said the government would "appropriately control the total annual volume of government bond issuance," taking into account both the initial budget and supplementary budgets.

Both announcements point in the same direction: under pressure from global yields repeatedly hitting record highs, authorities are proactively scaling back supply to ease market strain. The US 10-year Treasury yield has already climbed above 5.3%, its highest since 2002, while the UK 30-year gilt yield has risen past 6% for the first time since 1998.

South Korea: Tapping Excess Tax Revenue to Cut Issuance Across Maturities

According to the latest local media reports, South Korea's finance ministry has identified better-than-expected tax revenue as the funding source for the reduction.

The statement showed the cuts distributed across maturities as follows: 2-year bonds reduced by 1 trillion won, 3-year and 5-year bonds each cut by 800 billion won, 10-year and 30-year bonds each reduced by 700 billion won, and 50-year bonds lowered by 200 billion won.

For actual October issuance arrangements, 12 trillion won will be issued through competitive auctions with primary dealers, while an additional 500 billion won will be issued through bond swaps. In addition, the government plans to conduct buyback operations worth approximately 3.5 trillion won on 2-year, 3-year, 5-year and 10-year bonds that have passed their original issue dates but have not yet matured.

Market participants expect the government may further reduce issuance across maturities in November and December, with the total annual supply reduction potentially exceeding 10 trillion won.

Japan: Takaichi Pledges to Control Bond Issuance, Addresses Currency Controversy

On the Japanese side, Prime Minister Sanae Takaichi's remarks covered two main threads: government bond management and exchange rates.

According to a Reuters report on October 1, on bond management, Takaichi said the government would "appropriately control the total annual volume of government bond issuance," taking into account both the initial budget and supplementary budgets.

On the currency issue, Takaichi made clear that she "has told President Trump that a weak yen is a problem," while also emphasizing that "the foreign exchange market is determined by multiple factors" and that "Japan's economic policy is not aimed at manipulating foreign exchange." She elaborated further: "Our policy is designed to enhance the competitiveness of the Japanese economy, which will strengthen market trust in the yen."

In addition, Takaichi said food consumption tax reduction measures are expected to be reflected in selling prices.

Global Bonds: Multiple Pressures Converge, Yields Hit Multi-Decade Highs

On October 1, the US 10-year Treasury yield rose 4 basis points to 5.348%, breaking through its 2007 high and reaching its highest level since 2002. The 30-year US Treasury yield also touched its highest since 2002. The UK 30-year gilt yield climbed to 6%, the first time since March 1998. French government bond yields hit an 18-year high, with the France-Germany spread widening to its widest since June 2012. Japan's 10-year government bond yield also rose to 3.11%.

The Bloomberg Global Aggregate Treasury Total Return Index yield has risen to its highest since 2000, with global bonds posting cumulative losses of 2.7% this year.

Factors driving this round of selling include: escalating tensions in the Middle East pushing energy prices higher, persistently elevated inflation pressures, global government debt exceeding $40 trillion for the first time, and continuously expanding fiscal deficits across countries. Gilles Moec, chief economist at AXA Group, said, "Even though some key thresholds have been breached, long-end yields may not yet have reached a level where they can stabilize on their own."