Korea Treasury Bonds 2016

Publication registration No http://ktb.mosf.go.
kr
11-1051000-000417-10
M I N I S T R Y O F S T R AT E G Y A N D F I N A N C E
KOREA
TREASURY
BONDS
2 0 1 6
01. 의의 및 제도 변천 ｜ 1
M I N I S T R Y O F S T R AT E G Y A N D F I N A N C E
KOREA
TREASURY
BONDS
2 0 1 6
Preface
The Korean economy has recently been faced with various challenges both in and outside of
the country. The recovery of domestic demand has only been slow, while significant economic
and social changes are expected to emerge such as the decline of the working age population
beginning 2017. With the second half of 2016 recording the lowest global trading volume since
2010, external uncertainties abroad are ever greatest added by the new protectionist trend,
possible Fed rate hikes, prolonged instability of the Chinese financial market, Brexit, and the
like.
Amid such great transitions, the Korean government put its utmost efforts in improving the
nation’s economic fundamentals, aware that change and reforms are no longer an option but
key to survival. Korea actively used the supplementary budget to respond to its qualitative and
structural changes—namely shifts in demographics, industrial structures, and the increase of
welfare spending—and ensure sustainable economic growth. The government also focused on
creating jobs and launched various measures to include boosting consumption such as Korea
Sale Festa. With concerted efforts from the government and the public, the four sectoral reforms
have begun to bear fruits, and the sovereign credit rating was raised to an all-time high.
The public debt market showed noteworthy performance despite the prevailing internal and
external vulnerabilities. At a time where fiscal policy is ever more crucial, the government
successfully mobilized the fiscal resources needed to finance its operations, especially the
supplementary budget arranged to cushion the fallout of the MERS outbreak in 2015. The
government has actively communicated with market participants to enhance predictability of
government bond policies.
Despite the global financial uncertainties early on in 2016 and political risks such as Brexit,
Korea’s government bond market remained resilient and committed to raising funds in a stable
manner. The pilot issuance of the new 50-year Korea Treasury Bond, in particular, raised the
government’s financing and debt management capacity to another level. The government
Preface ｜ 3
tried its best to eliminate risks preemptively, through spreading out maturity and adjusting the
fungible issuance period. Efforts were continuously made alongside to newly adopt policies
and practices like preissuance and STRIPS, which may boost the value and marketability of
government securities.
“Korea Treasury Bonds 2016” contains detailed information on past developments of the
Korean public debt market, newly implemented policies, and major efforts made by the
authorities. By providing updates on recent trends, policy changes, and so much more, it aims
to facilitate deeper understanding of the market. I hope that “Korea Treasury Bonds 2016” can
be used as a reference for various discussions needed to build a more transparent and efficient
government bond market, and lay the cornerstone for a better capital market.
December 2016
Deputy Prime Minister / Minister of Strategy and Finance
‌4 ｜ Ministry of Strategy and Finance. Republic of Korea
Contents
Ministry of Strategy and Finance 11 1. Overview

Korea Treasury Bonds 12 2. Legal Basis
2016 Ⅰ. Introduction
‌ 13 3. Market Development
23 4. Types of Government Bonds
25 5. Government Bond Investors
29 1. Overview
30 2. Major Policies
Ⅱ. 2015-2016 KTB Market
40 3. Foreign Investment Trend
44 4. Primary Dealers
49 1. Overview
51 2. Auction Method
Ⅲ. Primary Market
53 3. Fungible Issuance
55 4. Redemption
61 1. Overview
61 2. Types of Secondary Market
Ⅳ. Secondary Market
63 3. KTS
66 4. OTC Market
75 1. Overview
75 2. Bond Listing System
Ⅴ. Government
‌ Bond 77 3. Bond Registration and Deposit System
Market Infrastructure 79 4. Standard Securities Codes
81 5. Clearing and Settlement System
85 6. Mark-to-Market Evaluation
Contents ｜ 5
89 1. Overview
89 2. Repurchase Agreement (Repo)
Ⅵ. KTB-related Markets 91 3. KTB Futures

96 4. STRIPS
98 5. KTB ETF (Exchange Traded Fund)
103 1. Overview
103 2. Background
Ⅶ. Primary
‌ Dealer 104 3. Changes in the PD system
System 106 4. PD Designation
108 5. Obligations of PDs
110 6. Rights and Incentives for PDs
115 1. Overview
116 2. Development of Foreign Investment
Ⅷ. Foreign
‌ Investment 117 3. Foreign Investment Management System (FIMS)
in KTBs 118 4. Foreign Investment Process
121 5. Taxation on Bonds for Foreign Investments
122 6. Custody Service by BOK
127 1. Retail Investors and KTB Auctions

Ⅸ. Investment
‌ Guide
129 2. KTB Official Webpage (http://ktb.mosf.go.kr)
133 1. Major KTB Trends

139 2. KTBs by Maturity
141 3. Outstanding Amounts and Time-to-Maturity Structure
142 4. Redemption Amounts on Maturity by Year
142 5. Yearly Issuance Amount
Annex : Statistics 143 6. Issuance Amount by Type

144 7. Outstanding Amount by Type
145 8. Trading Volume by Type
146 9. Turnover Ratio by Type
147 10. Foreign Holdings by Type
148 11. Holdings by Foreign Investor
list of Tables
Ministry of Strategy and Finance 11 <Table 1-1> Outstanding Balance and Trading Volume of Domestic Bonds
Korea Treasury Bonds 12 <Table 1-2> Size of Major Government Bond Markets (as of late 2015)
2016 18 <Table 1-3> Major Market Stabilization Measures from 2009~2015

19 <Table 1-4> Average Time-to-Maturity of KTBs
21 <Table 1-5> History of Bond Market Since the 1997 Asian Financial Crisis
23 <Table 1-6> Types of Government Bonds
24 <Table 1-7> Bonds Outstanding by Type
25 <Table 1-8> Main Investors in KTBs
30 <Table 2-1> KTB Issuance (performance-based)

31 <Table 2-2> Issuance of KTBs By Maturity
39 <Table 2-3> Major Policies in 2015 & 2016
43 <Table 2-4> Average Time-to-Maturity of Bonds Held by Foreign Investors
45 <Table 2-5> List of PDs and PPDs (as of July 1, 2016)
51 <Table 3-1> Example of Determining Winning Rates

52 <Table 3-2> KTB Bid-to-Cover Ratio
54 <Table 3-3> Types and Issuance Volume of KTBs
56 <Table 3-4> Annual Buy-Back Volume
57 <Table 3-5> Yearly Conversion Offer Volume of KTBs
63 <Table 4-1> KRX Trading System

65 <Table 4-2> Bid-Ask Spreads of KTB Benchmarks on KTS
67 <Table 4-3> OTC Trading by Bond Type
68 <Table 4-4> Comparison of KTS and OTC Market
70 <Table 4-5> Bonds Subject to Yield Report
76 <Table 5-1> Listing and Delisting Date of KTBs

80 <Table 5-2> Basic System of ISIN
81 <Table 5-3> ISIN of KTB 02750-1606 (13-3) (issued in June 2013)
81 <Table 5-4> ISIN of Type 1 National Housing Bond (issued in Sept. 2013)
82 <Table 5-5> Settlement Method in KRX and OTC Market
86 <Table 5-6> Measures to Expedite Establishment of Bond Pricing Agents
91 <Table 6-1> Average Daily Trading Vol. of KTB Futures

92 <Table 6-2> KTB Futures
100 <Table 6-3> Comparison of Major Financial Products
Contents ｜7
105 <Table 7-1> List of PDs and PPDs (as of July 1, 2016)
106 <Table 7-2> Standard for Financial Soundness
106 <Table 7-3> Criteria on Staffing and Expertise
107 <Table 7-4> Standards for Performance
109 <Table 7-5> Scoring Details for Quarterly PD Assessment for 2016
110 <Table 7-6> Scoring Details for Monthly PD Assessment for 2016
115 <Table 8-1> Foreign Investors’ Bond Holdings

117 <Table 8-2> Overview of FIMS
123 <Table 8-3> Overview of Custody Service
129 <Table 9-1> KTB Market Homepage Menu

list of Figure
Ministry of Strategy and Finance

20 [Figure 1-1] Average Time-to-Maturity of Government Bonds in Major Countries
Korea Treasury Bonds
25 [Figure 1-2] Issuance & Trade Proportion of Short-and Long-Term KTBs
2016
32 [Figure 2-1] Effects of Maturity Dispersion through Buy-backs and Conversion Offers
34 [Figure 2-2] KTBis Outstanding and Trading Volume
35 [Figure 2-3] Information Control System By Institution
40 [Figure 2-4] Outstanding Bonds Held by Foreign Investors
41 [Figure 2-5] Foreign Holdings Proportion
42 [Figure 2-6] Net Investment by Foreign Investors in 2015 & 2016
42 [Figure 2-7] Foreign Investors by Group
43 [Figure 2-8] Outstanding Bonds Held by Foreign Central Banks
50 [Figure 3-1] Bidding and Issuance Process

54 [Figure 3-2] Number and Average Amount of KTBs Issued
55 [Figure 3-3] Redemption Process of KTBs
62 [Figure 4-1] KTB Secondary Market

64 [Figure 4-2] KTB Issuance and Trading on KTS
77 [Figure 5-1] Bond Registration Procedure

79 [Figure 5-2] Collective Registration of KTBs
80 [Figure 5-3] Process to Grant ISIN in Korea
83 [Figure 5-4] Comparison of Bilateral Netting and Multilateral Netting
84 [Figure 5-5] Clearing
‌ and Settlement System in Major Financial Markets
89 [Figure 6-1] Repo Trading Process

95 [Figure 6-2] KTB Spot (issuance and trade) and Futures Market
96 [Figure 6-3] Example of STRIPS
98 [Figure 6-4] STRIPS Volume
99 [Figure 6-5] ETF Market Structure
118 [Figure 8-1] Investment Process for Foreigners

120 [Figure 8-2] When Foreigners Open an Account in Their Own Name
120 [Figure 8-3] When Foreigners Invest through Broker’s Account
128 [Figure 9-1] Procedure of Non-PDs’ Participation in KTB Auctions

2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
01
part
Introduction
1. Overview
2. Legal Basis
3. Market Development
4. Types of Government Bonds
5. Government Bond Investors
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
‌10 ｜ Korea Treasury Bonds 2016

Korea Treasury Bonds 2016
01. Introduction ｜ 11
01 Overview
Par t 01
The Korean government issued its first sovereign bond in 1950, and the country’s public debt market continued
to develop significantly over the past 65 years ever since. In particular, the volume of public debt issuance
swelled in 2000 and afterwards, and various policies and systems have been put into place for successful
issuance of sovereign bonds and development of the secondary market. The public debt market now plays a
vital role in the domestic bond market.
As of June of 2016, four types of government bonds are issued: Korea Treasury Bonds (KTBs), Treasury Bills,
National Housing Bonds (Type 1), and Foreign Exchange Stabilization Bonds. Among them, KTBs take up the
largest share and are the key means to financing public expenditures. With the issue volume the largest
compared to other bonds such as corporate bonds, KTBs are used as benchmark bonds in the Korean debt
market.
<Table 1-1> Outstanding Balance and Trading Volume of Domestic Bonds

(unit : %)
Monetary Local
Government Special Purpose Bank Corporate
Korea Treasury Stabilization Government
bonds Bonds debentures bonds
Bonds Bonds Bonds
Outstanding
Balance
36.7 (32.4) 11.4 18.8 9.2 22.7 1.3
Trading volume 77.1 (72.5) 11.8 2.6 3.3 5.0 0.3
* Source : KRX (Outstanding balance: listed amounts as of the June 2016, Trading volume: annual trading volume as of first half of 2016)
KTBs are currently issued as fixed-rate bonds (KTBs) with 3, 5, 10, 20 or 30-year maturities and inflation-
linked bonds (KTBis)—designed to eliminate inflation risks—with a 10-year maturity. In October 2016, a 50-
year fixed-rate KTB was also issued. Most KTB issues are sold to primary dealers (PDs) through competitive
bid, and some are issued through other methods like non-competitive bid options and conversion offers. In
efforts to issue KTBs efficiently in a stable manner, the government announces issuance plans in advance and
communicates with market participants to incorporate their opinions in related policies.
KTBs account for approximately 72.5% of all bond trading in the secondary market and are serving well as the
pricing benchmark. The Korean public debt market gained traction in the process of overcoming the Asian
financial crisis in 1997 and further developed through joint efforts of the government and market participants.
Trading of KTB-related products including KTB futures, Repo (Repurchase agreements), and ETF (Exchange
Traded Funds) have also recently become active, having positive impact on the trading of KTBs as a whole.
Korea’s public debt to GDP was 41.8% as of late 2014 (27th highest out of the 31 OECD countries). This
reflects the country’s sound fiscal position compared to other major countries like Japan (1st), the U.S. (10th),
the U.K. (9th), and so forth1). The outstanding government debt to GDP of Korea as of late 2015 is 31.2%.
<Table 1-2> Size of Major Government Bond Markets (as of late 2015)
(Unit：USD billion, %)
Korea U. S. Japan U. K. France Germany

Outstanding
Balance
429 13,207 7,483 2,195 1,749 1,239
Trading volume 31.2 73.6 181.5 77.0 72.2 36.9
* Source：(Outstanding balance) Ministry of Finance, DMO (GDP) IMF, World Economic Outlook, 2016.04
02 Legal Basis
To maintain the country’s fiscal soundness, the Korean government issues government bonds under clear legal
guidelines such as the Constitution, National Finance Act, State Bond Act, and the like. Article 58 of the
Constitution of the Republic of Korea declares the basic principle concerning the issuance of sovereign bonds:
“when the Executive plans to issue national bonds or to conclude contracts which may incur financial
obligations on the State outside the budget, it shall have the prior concurrence of the National Assembly.”
Article 18 of the National Finance Act states that “the financial resources for State expenditure shall be the
revenues other than the State bonds or loan funds borrowed; provided that funds raised through State bonds and
loan funds borrowed may, if un-avoidable, be appropriated to expenditure within the limit of the amount
approved by a resolution of the National Assembly.” In the same Act, Article 20 stipulates that “where
necessary to substitute existing State bonds with new State bonds, the Government may issue State bonds in
excess of the ceilings; in such cases, the Government shall report the fact to the National Assembly in advance.”
The State Bond Act, the general law on the issuance and redemption of government bonds, sets forth basic
matters concerning state bonds. Public debt issuance is strictly required a legal basis as the State Bond Act rules
that they can only be issued by the Minister of Strategy and Finance at the expense of the public capital
management fund, except as otherwise expressed in any other acts. In particular, National Housing Bonds, a
type of the government bond along with KTBs, are issued on the basis of mandatory placement pursuant to the
National Housing Fund Act.
1) ‌4 OECD member countries are excluded due to unavailability of data. Figures as of late 2015 are to be released in December 2016 (OECD).
Due to the absence of official disclosure in government debt market size, only available sources were used.
The government pushed forward the extensive revisions of the State Bond Act in 1979, 1993, and 2014 after its
enactment in 1949. The revisions rule electronic issuance as the basic method of public debt issuance. Legal
Par t 01
grounds were also set forth for matters such as fungible issuance, reissuance, conversion offer, and the like,
which were previously guided by “Regulations for KTB issuance and PD system management” under the
Ministry of Strategy and Finance (MOSF) notices. The revised State Bond Act and the Enforcement Decree of
the Act have been into force since July, 2015.
Details on the auction method, primary dealers, buy-backs, conversion offers, and the like are specified in the
MOSF notices. Bank of Korea (BOK) also has in place “Guidelines for Government Bond-related Tasks”
regarding the issuance and redemption of government bonds, and etc.
03 Market Development
(1) Before the 1997 Asian Financial Crisis
A. Early Stage of the Korean Government Bond Market
To meet the nation’s fiscal needs, the Korean government issued its first sovereign bond, the Nation-Founding
government bond, in February 1950. The Korea Stock Exchange (KSE) was established in March 1956 to
ensure fair price formation and smooth trading of securities, leading the public debt market to take the form of
an institutionalized market.
Until the early 1970s, over-the-counter (OTC) trading of listed bonds was prohibited by the Securities
Exchange Act, which was then revised to allow OTC trading of government bond in 1976. Entering the 1980s,
the greater number of bond products and market participants shifted bond trade from Securities Exchange to the
OTC market. Further measures by the government paved the way for the development of the secondary market,
such as allowing OTC trading of all bonds beginning 1984 and setting forth regulations on OTC trading of
bonds to institutionalize the respective market.
From the outset of the government bond issuance to the mid-1990s, the government put much efforts to
maintain balanced budget. The annual issue volume of state bonds to finance government expenditures in 1996
was roughly four trillion won, equivalent to only 1% of the nation’s GDP. The outstanding volume was also
only 6.5% of the GDP, which was very low compared to other major advanced countries (Japan at 61.3%, U. S.
at 54.8%, and U. K. at 34.2%).
B. Early Challenges in the Korean Government Bond Market
By 1994, Korea’s public debt market had both the Exchange and OTC market in place along with necessary
policies. However, their functions were limited due to the lack of issuance volume.
As the primary market was underdeveloped, the government required financial institutions such as banks and
insurance companies to underwrite government bonds at yields lower than the rates in secondary market. As a
result, institutions that purchased these bonds had no choice but to hold them to maturity or sell them
immediately in the secondary market with higher yields to avoid financial losses. Not only did this interrupt
proper price formation, but undermine trading. Ultimately, the low trading volume in the secondary market
lifted the yields, and in turn, higher yields suppressed trading, creating a vicious cycle.
Issuing too many different types of bonds also hurt the liquidity and became a drag on the growth of the
government bond market. Until 1993, government bonds were issued under a myriad of separate accounts and
funds, leading to the issuance of multiple unstandardized bonds. This led to the dispersion of demand for
government bonds, and the issuance and trading of each type of bond diminished, causing squeeze on the
liquidity.
Due to the lack of government bond issuance and trading, 3-year bank-guaranteed corporate bonds were used
as the benchmark in the bond market. As the principal of most corporate bonds was guaranteed by financial
institutions like commercial banks, the level of risks for corporate debt was thought to be similar to that of
government bonds. Corporate bonds were also more liquid due to its market size.
C. Efforts to Develop the Government Bond Market
In efforts to resolve the aforementioned issues, the Korean government wholly revised the State Bond Act in
late 1993 so that the myriad of bonds were consolidated into one. All clauses that provided the basis for issuing
public debt in separate acts were deleted and the Public Debt Management Fund was established to consolidate
government bond issuance. As a result, the Farm Land bond, Agricultural Development Fund bond, and
Railroad bond, and so forth were consolidated into the Public Debt Management Fund bond in 1994.
To bring improvements in the practice of mandatory underwriting, a syndicate of about 100 financial
institutions including banks, securities companies, investment firms, and etc was formed in 1994, and bonds
were issued through open, competitive bidding using the syndicate (genuine competition was still impeded as
the range of rates were predetermined by the government and dealers were required to underwrite in case of
failed bids). In addition, the registration issuance system in which the rights of bondholders were electronically
registered without having to be issued physical securities was put into practice.
As such, the Korean government bond market gradually took on the shape of an institutionalized market before
the 1997 Asian financial crisis, but sovereign bonds were yet to play a significant role in the financial market.
As of late 1996, government bonds accounted for only 14.5% of all bonds outstanding and 4.7% of the total
Par t 01
trading volume. The country’s bond market was dominated by corporate bonds, which accounted for 41.7% of
all bonds outstanding. It was in the onset of the Asian financial crisis in 1997 when the bond market arrived at a
critical juncture.
(2) After the 1997 Asian Financial Crisis (1998 to 2008)
A. The 1997 Asian Financial crisis
The crisis began with the crash of the Thai baht in July of 1997, which had spill-over effects on Korea. Foreign
investors collected loans from Korean financial institutions, promptly resulting in a sharp decline in the
country’s foreign exchange reserve. Faced with national default risks, the Korean government requested a
rescue package from the International Monetary Fund (IMF) in December 1997.
At the time of the crisis, multiple companies and financial institutions with heavy foreign debts dealt a blow
following the devaluation of the Korean won. A series of corporate bankruptcies unfolded, 17 of the nation’s 41
conglomerates carried out restructuring, and financial institutions were awash with non-performing loans. As
corporate bonds could no longer be backed by financial institutions, the new ones had to be issued as non-
guaranteed bonds. As a result, the share of corporate bonds, which was roughly 36% against the entire
outstanding volume in 1998, dropped to 26% in 2008.
B. Fostering Government Bond Market to Overcome Crisis
To overcome the Asian financial crisis, the Korean government carried out extensive reforms with focus on
improving financial market and corporate governance structures, raising labor market flexibility, and
liberalizing the capital market. The government expanded the KTB issue volume from 2.1 trillion won in 1997
to 12.5 trillion won in 1998 along the way and put great efforts in nurturing the public debt market, which
included the implementation of the primary dealer system in 1999 for reduced burden on the market amid the
rapid increase in the issue volume. Such efforts helped establish financial order and efficiently raise funds for
the restructuring of insolvent companies and financial institutions.
In September 1998, Public Debt Management Fund bonds began to officially be called KTBs, and various
government bonds like Grain Management Fund bond and Foreign Exchange Stabilization bond were
consolidated into KTBs in a phased-in manner. To promote primary and secondary markets, Korea Trading
System (KTS: KRX Trading System for government securities), the secondary market exclusively for
government bonds, was established at the Korea Stock Exchange in March 1999. In July of the same year, the
primary dealer system for KTBs was introduced. Since then, KTBs were efficiently absorbed through
competitive bidding, substantially improving the liquidity and efficiency of the KTB market.
To further increase liquidity and reduce the financing cost, a fungible issuance system was introduced in May
2000. 10-year KTBs began to be issued in October of the same year so that maturities could be lengthened and
refinancing risks could be reduced. To meet the various kinds of demand for KTBs and lay the groundwork for
development of the financial market, policies regarding sovereign bonds were introduced in a consecutive
manner. Starting January 2006, 20-year KTBs began to be issued and in March 2006, STRIPS was introduced.
In addition, inflation-linked KTBs (KTBis) began to be issued in March 2007 to provide a hedge tool against
inflation.
C. Attracting Foreign Investment
Measures to open Korea’s capital market to global investors were also put into practice. Most representative
ones were the elimination of the ceiling for foreign investment in listed bonds and the allowance of foreign
investment in all bonds beginning May 1998, which came after the past currency crisis takeaway: the need to
attract foreign investment to ensure sufficient amounts of foreign reserve.
As foreigners were previously obliged to report to the Bank of Korea (BOK) when they obtain loans exceeding
10 billion won, the amount was adjusted to 30 billion won in December 2007, mitigating the burden of
reporting for foreigners wishing to invest in KTBs. The policy in which foreigners were allowed to purchase
Korean won only after their purpose of purchase had been determined was relaxed as well beginning December
2007 so that they could convert to Korean won anytime, enabling them to respond to foreign exchange risks in
a more flexible manner.
D. Evaluation of the KTB Market
After the Asian financial crisis, the share of KTBs in all bonds outstanding increased from 5.6% in 1998 to
27.7% in 2008 and their share in the trading volume also jumped from 3.9% in 1997 to 51.8% in 2008, marking
the beginning of the KTB market’s lead in the domestic bond market.
As banks avoided guaranteeing corporate bonds to meet their required capital adequacy ratio after the crisis, the
benchmark status of corporate bonds began to shake and was eventually replaced by 3-year KTBs. The
positioning of 3-year KTBs as a benchmark was even more solidified following the increase of government
debt issuance to finance state budget and the evident flight-to-quality among investors. In 2004, 5-year KTBs
took over the benchmark role. It was clear that the Asian financial crisis served a significant part in bringing the
Par t 01
KTBs to the centre of Korea’s bond market.
(3) After the Global Financial Crisis (2009 - Present)
A. Surge in KTB Issuance to Overcome the Financial Crisis
In the wake of the global financial crisis in late 2008, sovereign debt issuance increased sharply around the world the
following year. Developed markets including the U.S., Europe, and Japan, have issued roughly 3.9 trillion dollars
combined in 2009, an 86% surge from the previous year. Korea’s public debt issuance also swelled to 85 trillion won
in 2009, up 63% from 52.1 trillion won in 2008, as a result of the increased fiscal needs to overcome the crisis.
Many in the global bond market voiced out the market itself cannot absorb the entire debt issues and that central banks
must intervene. As a matter of fact, central banks in the U.S., the U.K., Japan, and others purchased their county’s
government securities as part of their QE measures.
B. Efforts for Smooth Absorption of KTBs
Under such circumstances, the Korean government devised “Measures for Efficient KTB Issuance” in March
2009 and focused on efficiently raising funds from the capital market. To prevent bond issues from falling
heavily on a certain period of time, which could place burden on the market, KTBs were issued in a way that
the volumes were evenly spread out throughout the year. The proportion of short-term bond (3-year and 5-year)
issuance was also increased.
Importantly, the government adopted the differential-price auction method, to ensure efficient sales of KTBs,
and the conversion policy, to enhance liquidity. It also expanded the incentives for primary dealers to support
stable absorption of the supply volumes and promote the secondary market.
In 2013 and 2015, the government came up with and implemented market stabilization measures to
preemptively respond to the need for additional issuance following the supplementary budget, and the potential
supply-demand mismatch due to changes in global economic conditions.
<Table 1-3> Major Market Stabilization Measures from 2009~2015
March, 2009 April, 2013 July, 2015
·
‌‌‌Supplementary budget (April, ·Supplementary budget (May,
·MERS outbreak (May, 2015)
2009: 28.4 trillion won) 2013: 17.3 trillion won)
Background ·Supplementary budget (July,
·Continuation of low bid-to-cover ·Concerns over QE tapering
2015: 12 trillion won)
ratio (June, 2013)
·‌Cut issuance for market ·‌Cut issuance for market ·Cut issuance for market
Reduction of adjustment (by 9.6 trillion won) adjustment (by 7.0 trillion won) adjustment (by 2 trillion won)
issue increment ·
‌‌Issue increment: ·‌Issue increment: ·‌Issue increment:
‌16.9 tn won → 7.3 tn won ‌15.7 tn won → 8.7 tn won 9.6 tn won → 7.6 tn won
·‌Downsizing of long-term KTB

·‌Downsizing of long-term KTB issue
issue ·‌Extension of interval for rates
·Introduction of conversion offer
·‌Extension of interval for rates in differential-price auction for
·‌Adjustment of non-competitive
Easing of in differential-price auction of pre-issued KTBs
purchase ceiling and execution
burden on long-term KTBs ·‌Extension of non-competitive
interest rate
market-making ·‌Extension of non-competitive purchase ceiling and easing
·‌Adoption of differential- price
purchase ceiling in underwriting performance
auction method
·‌Extension of bid-ask price assessment
spread ·‌Adjustment of market-making
hours
Through the successful implementation of these measures, all KTB issues were completely absorbed by the
capital market without a single auction failure. As the economy began to recover, countries that have had
central banks directly purchase the government debt, including the U.S., were left with questions as to how the
purchased debt should be unloaded without triggering financial shock. Korea in contrast had all of its
government securities fully absorbed by the market, seamlessly financing the state funds needed.
C. Introduction of Korean-Style Auction Method
Par t 01
To ensure stable KTB sales, the differential-price auction was introduced in September 2009, which combined
the Dutch2) and conventional3)auction methods. In the differential-price auction, bid rates were aligned in
ascending order and divided into groups at an interval of 2 or 3 basis points, and all successful bidders were
awarded the highest winning rate within that group. Since the introduction, the bid-to-cover ratio hit 464.9% in
2012, and remains at around 400%.
D. Increase in Average-Time to-Maturity
Bonds with longer maturities are needed to minimize refinancing risks and spread out repayment burdens. The
Korean government steadily increased the share of long-term bonds since the launch of 10-year KTBs in
October 2000 and 20-year KTBs in January 2006. It introduced 30-year KTBs in September 2012, which are
currently issued on a regular basis4). In October 2016, the pilot issuance of a 50-yr KTB was also successfully
launched. To increase the liquidity of long-term KTBs (+10 years), the fungible issue period was set for 1 year
for 20-year and 30-year KTBs, and KTBis. Policies to promote 10-year KTB futures are in operation to provide
a hedge tool against the risk of investing in long-term KTBs. Other efforts are being made to lengthen the
maturity of government bonds such as the on-going investment relations activities directed at long-term
investors home and abroad.
<Table 1-4> Average Time-to-Maturity of KTBs
Year ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16.6
Average
Time-to- Maturity 4.68 4.85 4.96 5.33 5.56 5.96 6.50 6.73 7.62 7.86
(yr)
* as of end of year
2) The
‌ highest (or lowest) yield (or price) suggested by bid winners uniformly applies to all of the winners. The method used to be operated
from August 2000 until August 2009.
3) The
‌ bidder with the lowest yield was to win first, followed by the bidder with the second highest yield and so on. The total amount of the
winning bids became the issue amount, and each successful bidder received the yield they offered through their bids. The method used to
be operated at the early stage of PD system(July 1999~July 2000).
4) Yearly
‌ issuance volume of super-long KTBs (20-year and 30-year)(trillion won): (’06) 5.7 → (’07) 4.9 → (’08) 4.9 → (’09) 8.0 → (’10) 11.2 → (’11)
12.2 → (’12) 12.4 → (’13) 17.8→ (’14) 21.1 →(’15) 23.1→(’16. 6) 14.5
[Figure 1-1] Average Time-to-Maturity of Government Bonds in Major Countries
15.90
8.25
7.13 7.62
6.65
6.64 6.52
5.61
U.S. Germany Japan Canada ltaly U.K. France Korea
* Sources : (Korea) KRX, (Others) Finance Ministry, as of the end of 2015
E. Qualitative and Quantitative Growth of Foreign Investment
Foreign holdings of KTBs, which were only 4.2 trillion won (2.0%) in 2006, substantially increased, reaching
56.9 trillion won (15.7%) in 2012. Government securities became more marketable following the development
of the bond market infrastructure, and investors expanded their investments to profit from rate differences in
and abroad. Since 2010, KTB’s status as a safe-haven asset continued to strengthen due to factors such as rich
global liquidity, Korea’s sound fiscal position, high national credit rating, and relatively high interest rate
compared to other developed markets. Foreign investment remains stable, and the composition of the foreign
investor base diversified with the number of the investor countries up from 19 in 2006 to 42 in 2012. Recently,
global asset managers, central banks, and international organizations have been increasingly investing in long-
term bonds while the proportion of banks and investors seeking to profit from short-term rate differences
dropped, which is indicative of the improvement in the quality side of the KTB investments.
In particular, foreign demand for KTBs remained well anchored despite uncertainties in the global financial
market, such as the U.S. rate hike signals in and after 2015 and the Brexit issues. As of June 2016, KTBs held
by foreign investors is 70.4 trillion won (13.6%).
For timely response to the possibility of heightened market volatility due to frequent foreign capital movements,
the Korean government established Foreign Investment Management System (FIMS) to more efficiently
monitor and manage trends in foreign ownership.
<Table 1-5> History of Bond Market Since the 1997 Asian Financial Crisis
Par t 01
Date Events
Sept. 1998 First electronic auction for government bonds through BOK-Wire
Jan. 1999 Regularization of KTB issuance
Mar. 1999 Establishment of KRX Trading System for government securities (KTS)
Apr. 1999 Establishment of CD-rate futures market
Jul. 1999 Introduction of primary dealers (PDs) system
Sept. 1999 Establishment of 3-year KTB futures market
Jan. 2000 Grain Management Fund bond consolidated into KTB
May. 2000 Introduction of fungible issue system for KTBs
Jul. 2000 Full implementation of mark-to-market evaluation method
Change in auction method for KTBs from conventional multi-price auction to uniform-price, or
Aug. 2000
Dutch auction.
Oct. 2000 Issuance of 10-year KTB
Dec. 2000 Introduction of buy-back system
Feb. 2002 Establishment of Repo market at Korea Stock Exchange(KSE)
May 2002 Establishment of market for KTB futures options
Mandatory trading of benchmark government bonds at KSE and allowance of trading on

Oct. 2002
consignment
Dec. 2002 Establishment of MSB (Monetary Stabilization Bonds) futures market
Mar. 2003 Change of fungible issue period of KTBs from three to six months
Aug. 2003 Establishment of 5-year KTB futures market
May. 2004 Announcement of measures to promote long-term KTBs (Benchmark bond: 3 year→5 year)
Jun. 2004 Establishment of regulations on KTB issue and PDs
Jan. 2006 Issuance of 20-year KTB
Mar. 2006 Introduction of STRIPS
Mar. 2006 Adjustment of bid unit (10 billion won→1 billion won)
May 2006 Announcement of KRX bond index and KTB prime index
Sept. 2006 Introduction of non-competitive bid option Ⅱ
Nov. 2006 Adjustment of trading unit of KTBs (10 billion won→1 billion won)
Date Events
Mar. 2007 Issuance of KTBi
Aug. 2007 Establishment of retail bond market
Delisting of KTB futures options and CD-rate futures

Dec. 2007
Defined a basis for using omnibus accounts for foreigners buying bonds
Feb. 2008 Establishment of 10-year KTB futures market
May. 2009 Tax exemption for interest income and capital gains for foreign investors
May. 2009 Implementation of KTB conversion system
Jul. 2009 Listing of KTB ETF
Jan. 2010 Extensive revision of KTS bid-ask price system
Jun. 2010 Reissuance of KTBi after change of KTBi issue method
Jan. 2011 Opening of web site for government bond market (http://ktb.mosf.go.kr/eng)
Mar. 2011 Modification of PD system (introduction of preliminary PDs)
Mar. 2012 Implementation of the PD/PPD promotion & demotion system
Apr. 2012 Adjustment of bid unit for retail investors (1 million won→100,000 won)
Apr. 2012 Inclusion of retail investors in KTBi auction
Sept. 2012 Introduction of 30-year KTB
Jan. 2013 Announcement of measures to extend maturity of benchmark bond (5 →10 year)
Revision of rate disclosure system (two decimal places→ three decimal places, coupon rates in
Jun. 2013
unit of 12.5bp)
Extensive revision of State Bond Act (revisions of provisions on electronic and fungible issuance,
Dec. 2014
buy-backs, and etc.)
Jan. 2015 Adjustment of fungible issuance period (2 year→1 year)
Jul. 2015 Implementation of the revised State Bond Act (Extensive Revision-Dec. 2014)
Oct. 2015 Opening ceremony of “KTB Integrated Information System” and holding of experts forum
Dec. 2015 Establishment of When-issued market and introduction of PDs for STRIPS
Mar 2016 Implementation of policies for PDs specializing in STRIPS
Oct. 2016 Issuance of 50-year KTB

04 Types of Government Bonds
Par t 01
(1) Types of Government Bonds
The Korean government issued its first debt security—the National Foundation Bond—in 1950 to cover
shortfalls in revenue and finance state budget. While 21 different types of government bonds have been issued
since then, the government currently issues just four types: Korea Treasury Bond, Treasury Bill, Korea
International Bond, and National Housing Bond.
Korea Treasury Bonds (KTBs), which were originally called “Public Debt Management Fund Bonds,” changed
to their current name in September 1998 and have been issued regularly since. Currently playing a
representative role in the domestic bond market, they provide benchmark rates for the Korean capital market.
Treasury bills, which are used to cover temporary shortfalls in budget, are currently issued as discount bonds
with maturities of less than one year (generally 63-day).
Korea International Bonds (KIBs) are foreign currency denominated state bonds issued to provide base rates for
Korean bonds in the international financial market and promote the Korean economy abroad. As of present, all
KIBs have been issued in overseas bond markets.
National Housing Bonds (NHBs) are bonds issued to raise funds for the construction of residential houses
pursuant to the National Housing Act. Unlike other government bonds, NHBs are issued on the basis of
mandatory placement. Although they were issued as either Type 1, 2, or 3 depending on the obligations or
grounds for acquisitions, only Type 1 is currently being issued.
<Table 1-6> Types of Government Bonds
Type Purpose of Issuance Issuance Maturity Coupon rate

method
3, 5, 10, 20 & 30 Determined by
KTB Finance government operations Competitive bid
years auction
Treasury bill Cover temporary shortfalls in budget Competitive bid Within one year 0%
Create a favorable environment for the private 5, 10, 15 & Determined at
KIB Competitive bid
sector to issue foreign currency bonds 20 years issuance
Mandatory
NHB-Type 1* Fund raising for housing projects 5 years 1.50%
Placement
* NHB-Type 1 or 2 exist depending on the obligations and the grounds of acquisitions, but they are no longer newly issued.
** In Oct, 2016, the pilot issuance of 50-year KTB was launched using a underwriting syndicate.
<Table 1-7> Bonds Outstanding by Type

(trillion won, %)
KTBs Treasury Bills NHBs KIBs Total
Outstanding
516.7 6.0 62.5 7.1 592.3
amount
Share 87.2 1.0 10.5 1.2 100
* As of June 2016
(2) Types of KTBs

KTBs are classified into conventional KTBs, which pay a fixed coupon rate based on a fixed principal amount,
and inflation-linked KTBs or KTBis that pay the principal and coupons based on the changes in inflation over
time. While the legal basis has been established for the issuance of floating-rate KTBs, in which rates are
indexed to the money market rate, they have yet been issued.
Conventional KTBs are regularly issued with five different maturities: 3, 5, 10, 20 and 30 years. Among them,
3- and 5-year KTBs and 10-year benchmark KTBs are newly issued every six months. 20 and 30-year KTBs
are newly issued every one year. Also, the pilot issuance of the new 50-year KTB was launched in October
2016 (additional issuance will be decided after taking into account the actual demand and market conditions
home and abroad).
KTBis on the other hand began to be issued in March 2007 using an underwriting syndicate to expand the
government bond investment base and set the stage for further development of the pubic debt market.
Beginning June 2007, they were issued through auctions participated by primary dealers. The process changed
in June 2010 so that primary dealers can purchase KTBis after submitting a request with the amount they wish
to underwrite.
The proportion of bond issues with maturities 10-years or longer increased from 34.3% in 2008 to 50.4% as of
June 2016. In the secondary market, which sees a daily average trading volume of more than 10 trillion won,
their share in the total trade rose from 9.0% in 2008 to 17.9% in June 2016.
[Figure 1-2] Issuance & Trade Proportion of Short-and Long-Term KTBs
Par t 01
(Issuance) (Trade)
Over 10-year Under 10-year Over 10-year Under 10-year
2.3% 9.0%
23.4% 17.9%
34.3%
50.4%
97.7% 91.0%
76.6% 82.1%
65.7%
49.6%
2003 2008 2016. 6 2003 2008 2016. 6
05 Government Bond Investors
(1) Overview
Investors in the government bond market are classified into domestic or foreign investors by nationality, and
financial institutions (ie. banks, insurance companies, and pension funds) or non-financial institutions (ex. non-
financial companies and retail investors) by investment institution type.
Among the main investors, banks traditionally take up the largest share in KTB holdings. Institutional investors
are key investors, meaning the proportion of retail investors is fairly small.
<Table 1-8> Main Investors in KTBs

(Unit：KRW trillion)
Investment
Pension Insurance Securities
Classification Banks trust Others Total
funds companies companies
companies
Holdings 172.2 94.8 131.8 64.4 42.2 34.1 539.5
* As of June 2016 (Stripped KTBs included)

Investment trust Investment trust

3.7% 7.8%
Other Other
Securities 1.3% Securities 6.3%
7.2% 11.9%
Bank
Insurance Bank 31.9%
15.5% 43.4%
Holdings as of end of 2008

Insurance
Holdings as of June 2016
24.4%
Pension funds
29.0% Pension funds
17.6%
Meanwhile, foreign investment has been steadily increasing since the full opening of the bond market at the
time of the 1997 Asian financial crisis. KTB holdings by foreign investors recorded 70.4 trillion won as of June
2016, equivalent to 13.6% of the total KTBs outstanding.
(2) Diversification of Investors

The Korean government bond market traditionally depended on domestic investors and banks, but other
investors—namely foreign investors and non-bank financial institutions—are gaining importance as well.
Investors with different time horizons, risk preferences, and trading objectives can disperse systemic risks and
mitigate market volatility.
Following the expansion of the retirement pension scheme and introduction of risk-based capital (RBC)
requirements, non-bank financial institutions like insurance companies are also increasingly investing in KTBs.
To keep up with the demand from these long-term investors, efforts are being made continuously to promote
the long-term sovereign debt market such as strengthening the market-making role of PDs for 10-year or longer
KTBs, regularly supplying ultra-long bonds like 30-year KTBs, and so forth. In order to strengthen the
connection between futures and spot markets, the government is also working on promoting the 10-year KTB
futures market, which provides hedging instruments against long-term rates fluctuation.
2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
02
part
2015-2016
KTB Market
1. Overview
2. Major Policies
3. Foreign Investment Trend
4. Primary Dealers
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +

02. 2015-2016 KTB Market ｜ 29
01 Overview
Par t 02
While globally low interest rate trends persisted in 2015 due to global economic slowdown, domestic rate cuts,
and so forth, the government issued KTBs of 109.3 trillion won in total, which was 11.8 trillion won more than
the year earlier. Of the total amount, 46.9 trillion won was spent to cover general account fiscal funds, and 45.7
trillion won was used for redemption at maturity, and 16.7 trillion won was spent for buy-backs and conversion
offers. In the later half of 2016, uncertainties in the global financial market and greater political risks such as
Brexit drove flight for quality, rendering KTB yields record-lows.
Due to factors such as the rate cut by the Bank of Korea and monetary easing by major central banks in March,
KTB yields quickly fell at the start of April (yield for the 3-year KTB dropped to below 1.70%). In mid-April,
yields began to pick up due lesser concerns on the deflationary pressure following the oil price recovery and the
massive domestic issuance of MBS (Mortgage Backed Securities). The slow domestic demand as a result of the
MERS outbreak in May and the further rate cut by the Bank of Korea in June, brought down KTB yields again,
adding to the increased volatility in the first half of 2015.
Although KTB yields rose amidst expectations of Fed rate hikes at the start of the second half, they fell back
and continued to fall as China’s Yuan depreciation and stock market turbulence in August triggered stronger
preference for safe assets.
The large falls in KTB yields continued into 2016 as the market expected domestic rate cuts while Fed rate
hikes were being delayed. The decision of Brexit in June 24 also triggered flight to quality, driving substantial
falls in KTB yields.
Despite the uncertainties home and abroad, KTBs were successfully issued as scheduled; in volumes balanced
out throughout the year. Much efforts were also put in to prevent yield fluctuations that may be caused by the
supply and demand imbalances at certain point in time. While the issue volume of long-term bonds was
adjusted in a flexible manner taking into account market conditions like the increased demand from insurance
companies and other long-term investors, optimal issuance of KTBs by maturity was maintained as scheduled
early in the year. To mitigate refinancing risks that may arise due to maturity dates falling heavily on a certain
period of time, the government undertook buy-backs using proceeds from KTB issuance. At the same time,
conversion offers to switch holdings of off-the-run bonds into benchmark bonds were conducted, raising the
level of liquidity in the market.
The average daily trading volume slightly increased compared to 2014. In the first half of 2015, which saw two
base rate cuts, the daily trading volume was 12.7 trillion won. In the second half, it slightly dropped to 12.0
trillion won due to the outlook of U.S. rate hikes, account settlement for the year end, and so forth. In the first
half of 2016, the daily trading volume recorded 14.9 trillion won.
Despite concerns like the Fed’s rate raise, a net foreign investment in KTBs continued on. Foreign holdings in
KTBs is 70.4 trillion won as of June 2016, equivalent to 13.6% of total KTBs outstanding. Holdings by foreign
central banks, which tend to be long-term bondholders, particularly increased, improving the quality of foreign
investment.
02 Major Policies
(1) KTB Issuance in 2015

The government issued KTBs worth 109.3 trillion won in 2015, which was a record high and a 12.1% increase
from a year earlier, to cover budget deficit and refinance a large scale of maturing debt. Although debt issue for
the purpose of refinancing slightly decreased from the previous year, recording 45.7 trillion won, the amount
used to cover budget deficit and support the economy significantly increased (by 9.2 trillion won). New
issuance for market-making purposes, which include buy-backs and conversion offers, increased to a
considerable extent as well from 8.3 trillion won in 2014 to 16.7 trillion won in 2015.
To support Korea’s economy, the government heightened its fiscal role, setting up a plan of issuing KTBs worth
110.1 trillion won in total (+0.8 trillion won) for 2016. The sufficient demand for KTBs coming from increased
assets managed by long-term investors like insurance companies and expansion of MMF is expected to buttress
successful sales of KTBs planned to be issued for the year. As of June 2016, KTBs worth 58.5 trillion won have
been issued.
<Table 2-1> KTB Issuance (performance-based)5)

(tn won)
(Net
2009 2010 2011 2012 2013 2014 2015 1H, 2016
Increase)
Total Issue 85.0 77.7 81.3 79.7 88.4 97.5 109.3 (+11.8) 58.5
·NetIncrease 41.6 29.2 30.0 22.8 37.8 37.6 46.8 (+ 9.2) 31.6
·Refinancing 27.9 26.2 24.2 42.8 42.1 51.6 45.7 (△5.9) 21.9
5)
·Market-making 15.5 22.3 27.1 14.0 8.4 8.3 16.7 (+ 8.4) 5.0
5) Buyback before maturity (corresponding year) + buyback (after the following year) + Net Redemption (surplus funds, etc)
02. 2015-2016 KTB Market ｜ 31
(2) Issuance Spread Out Throughout the Year
Par t 02
In order to prevent market volatility that may be triggered by the mismatch of supply and demand for KTBs
and provide predictability of the issue volume, the government has been issuing KTBs in amounts that were
spread out throughout the year (for 2015, the average monthly issuance was 9.1 trillion won, and for 2016, 9.2
trillion won is expected).
While focused on issuing KTBs in amounts spread out throughout the year, the government adjusted the
issuance volume for the first and second half of the year taking into account market conditions. Due to early
fiscal execution to boost the economy, the issue volume in the first half surpassed that of which was expected
for the second half. With the allocation of supplementary budget, the issuance in the second half eventually
surpassed that of the first (first half: 53.3 trillion won, second half: 56.0 trillion won).
(3) Policy to Maintain Optimal Issuance

In addition to spreading out issuance, the government aimed to maintain optimal proportion of KTB issues by
maturity, making sure refinancing risks are effectively managed and supply and demand remains stable all the
more.
Entering into 2016, it increased the proportion of 30-year KTB issues taking into account the demand for long-
term bonds, and raised the ceiling of monthly 30-year KTB issues from 100 billion won to 250 billion won
subject to non-competitive subscriptions (STRIPS).
<Table 2-2> Issuance of KTBs By Maturity

(tn won, %)
KTB by Maturity 3-year 5-year 10-year 20-year 30-year
Issuance amount 26.7 29.7 29.7 11.0 12.1
2015 Issuance proportion 24.5 27.2 27.3 10.0 11.1
Target proportion 20~30 20~30 25~35 5~15 5~15
Issuance amount 13.7 15.3 15.0 6.1 8.4
1H, 2016 Issuance proportion 23.4 26.2 25.7 10.4 14.3
Target proportion 20~30 20~30 25~35 5~12 8~15
* 10-year KTBs (KTBis included)

(4) Dispersion of Maturities

The government continued to actively conduct bond purchases and conversion offers using government surplus
funds and proceeds allocated for market-making purposes to minimize refinancing risks that may occur in the
case existing debt maturities heavily concentrate on certain years.
In particular, the scope of those who can participate in buy-backs and conversions was expanded from PDs to
PPDs in 2016, and the method of conversions was changed from multiple-price auction method to differential-
price auction method with the rate interval also increased from 2bp to 3bp.
[Figure 2-1] Effects of Maturity Dispersion through Buy-backs and Conversion Offers
100
Issuance amount (KRW trillion)
(’14) 79.0
Maturity amount (KRW trillion)
75 (’18) 76.4
(’15) 64.4
(’18) 67.4
(’14) 51.6
50
(’15) 45.7
(’16) 36.3
25 (’16) 32.0
0
’97 ’00 ’02 ’04 ’06 ’08 ’10 ’12 ’14 ’16 ’18 ’20 ’22 ’24 ’26 ’28 ’30
On the other hand, the government adjusted the fungible issue period so that the maturity dates are spread out
throughout the year. As maturities of three existing bond types (3-year, 20-year, and 30-year) were concentrated
on the month of December, swelling the size of maturing debt compared to other months, the fungible issue
period of 20-yr and 30-yr KTBs, was shortened to 1 year (20-year replaced to September, 30-year to March),
and the issuance months for 5-year and 10-year KTBs were separated (5 year: March and September, 10-year:
June and December).
<Ex> BEFORE: KTBs due by month (Tn won)  AFTER: KTBs due by month (Tn won)
40 40
3years 5years 10years 20/30years (every year) 3years 5years 10years 20years 30years
12
20 20
12 12 12 12 12 12
24
12 12 12 12 12 12 12
0 0
In March June September December In March June September December
02. 2015-2016 KTB Market ｜ 33
(5) Implementation of Pre-issuance
Par t 02
In order to address the liquidity problem that occurs from replacing the benchmark bond, pre-issuance was put
in place. The existing benchmark bonds and to-be benchmark bonds are issued at the same time three months
prior to new issuance. In 2016, ultra-long bonds (20-year and 30-year) became subject to pre-issuance as well.
Considering the level of liquidity for those bonds, the pre-issuance period was reduced from 3 months to 1
month, while the proportion was increased (40% to 50%).
<Ex> Outstanding balance of current benchmark bonds  Outstanding balance after adoption of pre-issuance
Replace Actual Replace Actual

Indicator Function Indicator Function
Back sales Back sales

12 12 12 12
11 11
10 10 10 First, sales 10 First, sales
8 8 9 9
7 7
Replace 6 Replace 6
indicator indicator 5 5
4 4
3 3
2 2 2 2
1 1
Dec JUN FEB JUN FEB MAR APR MAY JUN SEP OCT NOV Dec JUN FEB JUN FEB MAR APR MAY JUN SEP OCT NOV
(6) Normalization of KTBi Market

Since 2007, the Korean government has been issuing KTBis to offer investment products in which the principal
was linked to inflation. Primary and secondary KTBi markets are still in their depression phase due to
prolonged low price environment and interest income tax imposed on principal increments of KTBis starting
2015. Nevertheless, the government is continuously working on promoting the KTBi market, aware of its
hedging function against inflation in the long run.
In accordance with the PD regulations revised in January 2015, the fungible issuance period for KTBis was
shortened from 2 years to 1 year and the underwriting period for PDs was extended from 1 day to 2 days,
reducing the burden of underwriting inflation-linked bonds for PDs. In addition, benchmark KTBis (newly
issued) became available for conversion, which previously only allowed off-the-run KTBis6).
As a result, KTBis outstanding continued to increase and the liquidity of the inflation-linked bonds, or its
trading volume, showed recovery although slight.
Nominal benchmark Nominal benchmark

6) government market  government market
Off-the-run KTBi KTBi benchmark
[Figure 2-2] KTBis Outstanding and Trading Volume
(KRW 0.1billion) KTBi Outstanding Balance KTBi Trading Volume Annual Average CPI Increase (%)
(left) (left) (Right)
16.0 5.0
4.5
14.0
4.7
4.0
12.0
4.0 3.5
10.0 3.0
8.0 2.8 3.0 2.5
2.5 2.0
6.0 2.2
1.5
4.0
1.3 1.3 1.0
2.0 0.9 0.5
0.7
0.0 0.0
’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16.6
(7) Partial Revision of the Enforcement Decree of the State Bond Act
The government pushed forward the extensive revision of the State Bond Act in 2013, and the bill was passed
in the National Assembly in December 2014. As the existing Act based its premise on the issuance of physical
securities, it did not fully reflect or cater to the present market environment. As a result, the Ministry of Strategy
and Finance set up a task force with other related organizations—including Financial Service Committee,
Ministry of Land, Infrastructure and Transportation, Bank of Korea, Korea Exchange, and Korea Financial
Investment Association—and held several rounds of internal discussions over the 6 month period from January
to the middle of June in 2013 to come up with the extensively revised Act.
It was made clear in the revision that the electronic issuance was the main means of issuing government
securities. Legal grounds were set forth for matters such as fungible issuance, reissuance, conversion offer, and
the like, which were previously guided by “Regulations for KTB issuance and PD system management” under
the Ministry of Strategy and Finance (MOSF) notices. Enforcement Decrees concerning the payment of
principal and interest were raised to be directly governed by the Act, clarifying the legal obligations in the
payment of the government bond principal.
To ensure smooth implementation of the revised act, the government partially revised the enforcement decrees
of the State Bond Act and set forth matters such as the issue dates for fungible KTBs, the method for calculation
of interest, and the like. The revised State Bond Act has been into force since July, 2015.
02. 2015-2016 KTB Market ｜ 35
(8) Establishment of the Integrated KTB Information System
Par t 02
As for the management of information on KTBs, Bank of Korea (BOK) and Korea Exchange (KRX) had been
in charge of the primary KTB market while Korea Financial Investment Association (KOFIA), Korea Securities
Depository (KSD), and KRX had been in charge of the secondary market. Such division made it difficult to
fully utilize the information and manage the KTB market in a connected, timely manner. In response, the
government decided to establish an integrated KTB information system, and created a task force consisting of
experts and insiders of related institutions to discuss details of the measure.
[Figure 2-3] Information Control System By Institution
Exchange
Issuance OTC Holdings Redemption Foreign Holdings
Trading
BOK KRX KOFIA KSD BOK, KSD FSS
* BOK is entrusted the work of government bond issuance by the Ministry of Strategy and Finance
Based on discussions, the integrated information system was established with KOFIA playing the central role.
Completed in October 2015, the integrated system is anticipated to increase access to information on KTBs for
the government, industries, and public, enabling timely retrieval of accurate information.
(9) Promotion of STRIPS

In order to expand the supply and demand base for short-term bonds in response to potential market volatility,
the government pushed forward the promotion of STRIPS, which was implemented in March 2006. The scope
of bonds subject to separation of principal and interest was stretched out from those with maturities of 5 years
or longer to 3 years and longer, and benchmark stripped KTBs were supplied regularly on a weekly basis. The
government decided to list stripped KTBs on the primary government bond market and work on market-making
for these bonds as well. In addition, the policy for PDs specializing in STRIPS was adopted in 2016. Regular
supply of stripped KTBs subject to non-competitive subscriptions became available to the PDs, and their
trading performance in stripped bonds were added to the their semi-annual evaluation. Through such efforts, the
government envisage short-term floating funds such as MMF to be absorbed by these stripped bonds that have
short maturities, expanding the investor base for short-term KTBs. It also anticipates STRIPS to contribute to
the formation of short-term benchmark rates by providing a short-term rate structure for bonds with maturities
of less than six months.
(10) Improvement in PD regulations

To enhance PDs’ market-making role, the government brought about changes to PD assessment and incentives.
Under the new policy, underperforming PDs (two institutions with the lowest scores in the annual assessment)
demoted to PPDs (Preliminary Primary Dealers) are given the opportunity to be re-promoted to PD. Also, the
number of opportunities to newly become PPD changed from once to twice a year, and their trading
performance requirement was relaxed from 50% of the average trading performance of PDs to 35%.
In April 2015, monthly assessment was introduced along with the existing semi-annual PD assessment. By
adjusting the percentage points given for non-competitive subscriptions based on the semi-annual evaluation,
the top five PDs in the monthly assessment are each given additional 10%p for non-competitive subscriptions
options.
<Existing semi-annual ceiling> <Semi-annual ceiling> <Additional monthly ceiling>
5 PDs (1st to 5th place) 25% 20%

5% 10%
5 PDs (6th to 10th place) 15% 15%
5 PDs (11th to 15th place) 10% 10% Additional points

5% to top 5 PDs
5 PDs (16th to 20th place) 10% 5%
Due to the increase in KTB issue volume in 2015 resulting from supplementary budget allocation, the ceiling
for non-competitive subscriptions based on the monthly assessment was temporarily (July to November)
adjusted upward at 15%p for the top five PDs, and 5%p for the next five PDs.
(11) KTB Market Stabilization Measures (July, 2015)

Due to the supplementary budget allocation of about 12 trillion won to stabilize the livelihoods of the working
class and tackle the MERS outbreak and draught, the total KTB issue volume was expected to increase by
approximately 9.6 trillion won. To reduce the burden of oversupply, the government downsized the increment
to 7.6 trillion won by reducing supplies intended for market-making like conversion offers and buy-backs
(remaining amounts in second half: 4.6 trillion won). The increments were issued in amounts of 1~1.5 trillion
won during the five months from August. Mainly short-term bonds (3-year and 5-year) were supplied rather
than long-term bonds as they carry relatively less market volatility risks.
02. 2015-2016 KTB Market ｜ 37
Measures to improve the market infrastructure were also pushed forward. To promote underwriting by PDs,
non-competitive subscriptions following a monthly assessment was added7). Also, to reduce the burden of
Par t 02
auction and establish preissuance, the interval for rates in differential-price auction was expanded (3-year and
5-year: 2→3bp, 10-year, 20-year, and 30-yr: 3→4bp). In the evaluation of PDs, the range of acceptance for 10-
year underwriting performance was also expanded from +2bp to +3bp from the highest bidding rate to ensure
higher bid-to-cover ratio. In order to promote the roles of market-makers, their obligations and the method of
their evaluation were also partially changed. Taking into account that mainly short-term bonds are issued to
finance supplementary budget, the scores for underwriting of 3-year and 5-year KTBs were changed from 3 to
4, and that of 10-year bonds from 8 to 9. The score for 10-year futures, in which the foundation is laid for
traders to voluntarily trade, was reduced from 4 to 28). In order to reduce the burden of underwriting inflation-
linked KTBs, in the midst of prolonged low prices, the method of assessment for KTBi was also partially
changed9). In addition, market-making hours changed from 13:00-15:00 to 13:30-15:30 to reduce the burden of
offering ask prices.
(12) Implementation of WI Market

The government established a when-issued (WI) market in December 2015 to create a new demand for trading
and allow investors to search for yields prior to auctions, providing a hedging tool to market participants.
Through the WI market, the government was able to respond flexibly to the market supply and demand
conditions by obtaining related information prior to the auction, which includes preventing failure of bids by
reducing the issue volume in times of expected demand shrinkage due to market instability.
(13) Change in Display of Trading Price (Unit)

Steps to add one more decimal place in the display of KTB prices began in 2013 with the primary market
(won→ 0.1 won). By June 2016, trading prices were also began to be displayed with one decimal place.
7) (Before) (1st Place~5th Place) +10%p → (After) (1st Place~5th Place) +15%p , (6th Place~10th Place) +5%p
8) The
‌ scores temporarily adjusted following the 2015 supplementary budget was readjusted in 2016 (Before supplementary budget: 28→ After
supplementary budget: 31 → readjusted: 29)
9) (Before) Underwriting performance/Underwriting ceiling *1pt→ (After) Underwriting performance/(underwriting ceiling*0.5) *1 pt
(14) Pilot Issuance of 50-year KTB

Amid low rates and greater interest in ultra-long bonds globally, Korea launched a pilot issuance of the new 50-
year KTB to preemptively respond to the needs for long-term financing and manage fiscal funds in a stable
manner.
As 30-year KTB yield dropped below 1.5% entering into 2016 and the gap between short-and long-term yields
substantially narrowed compared to other major countries, it was deemed that the conditions to issue new ultra-
long bond have been met.
After announcing in August 2016 that the government is considering issuing new ultra-long bond, it collected
opinions from market participants through consultation papers. A total of 36 institutions including PDs,
insurance companies, and research centers, submitted consultation papers and took part in the process of issuing
the 50-year KTB. Most of the participants presented opinions that the issuance of the bond is timely considering
the low rates trend and strong demand coming from long-term domestic investors.
In September 2016, the underwriting syndicate was formed, and the 50-year KTB worth 1.1 trillion won was
successfully issued on October 11, 2016, at a rate of 1.574% (+0.04%, 10-year KTB).
50-year KTB Issuance Ceremony (October 12, 2016)

02. 2015-2016 KTB Market ｜ 39
<Table 2-3> Major Policies in 2015 & 2016
Par t 02
Date
15. 1. 1. Implementation of revised PD regulations (KTB Market Advancement Measure, ’14.12.23)

* Adjustment of fungible issuance period (20·30 yr KTB·KTBi: 2 yr→1yr), 30 yr auction date, etc
2.27. Announcement of outstanding PDs for the second half of 2014

3.31. Rate cut for Type 1 National Housing Bond (Annual 2.00% → 1.75%)
3. 5. Hosting of KTB market development forum
4. 2. Hosting of the award ceremony for outstanding PDs in the second half of 2014
7. 1. Implementation of revised State Bond Act (extensive revision, ’15. 12. 30)
Announcement of KTB Market Stabilization Measures following supplementary budget
allocation
7. 3. Revision* of PD regulations following KTB Market Stabilization Measures
* Increase
‌ of non-competitive purchase ceiling, extension of the interval for rates in differential-price auction
(pre-issuance)
8. 3. Publishing of “Korea Treasury Bonds 2014”

8.11. Announcement of outstanding PDs for the first half of 2015
Hosting of the second Korea Treasury Bonds International Conference
8.27.
Hosting of the award ceremony for outstanding PDs in the first half of 2015
Revision* of PD regulations as a follow-up of KTB Market Stabilization
8.28. Measures(’14.12.23)
* Regular supply of STRIPS, preparation for WI implementation, etc
10.23. KTB Integrated Information System opening ceremony and experts forum
12. 1. Implementation of WI trading policy
12.22. Announcement of KTB Issuance Plan for 2015 and Market Advancement Policy
16. 1. 1. Implementation of revised PD regulations as part of Market Advancement Policy (’15.12.22)

* Policies for PDs specializing in STRIPS, promotion of WI market, relaxing of PPD requirements, etc
1.18. Hosting of KTB market development forum

2. 3. Announcement of outstanding PDs for the second half of 2015
3.15. Execution of PD-PPD promotion/demotion

* Mirae Asset Securities (PPD→PD), Yuanta Securities (PD→PPD)
3.23. Hosting of the award ceremony for outstanding PDs in the second half of 2015
3.28. Designation of PDs specializing in STRIPS (15)
Implementation of market-making policies for STRIPS
7. 1.
Designation of new PPD (Deutsche Bank, Seoul Branch)
8.16. Announcement of consideration in issuing 50-year KTB
8.18. Announcement of outstanding PDs for the first half of 2016
Date
Hosting of KTB market development forum and the award ceremony for outstanding PDs in
9. 8. the first half of 2016
* Announcement of guidelines of issuance of 50-year KTB
9. 8. Announcement of formation of underwriting syndicate for 50-year KTB

Auction for 50-year KTB (10 PDs, 1.67 trillion won received)
9.28. * (lead
‌ PDs) NH Investment & Securities, Shinhan Investment Cor., Kookmin Bank (PDs) Daishin Securities,
Samsung Securities, Hyundai Securities, Dongbu Securities, Meritz Securities, Mirae Asset Daewoo, Mirae Asset
9.30. Hosting of the third Korea Treasury Bonds International Conference

* ‌Announcement of 50-year KTB auction results
10.11. Issuance of 50-year KTB

10.12. Hosting of 50-year KTB Issuance Ceremony
03 Foreign Investment Trend
Despite mounting external uncertainties including the projection of the Fed rate hikes following the tapering
and geopolitical risks in the emerging market, foreign investment in KTBs remained relatively stable.
Although the outstanding bonds held by foreign investors continued to fall after breaking the 100 trillion won
line in mid-2013, it gradually rose again in and after 2014. In 2016, foreign holdings decreased by a small
margin after the adjustments global investors made in their asset portfolios. As of June 2016, foreign holdings
in bonds is 96.2 trillion won in total, with KTBs taking up 70.4 trillion won and MSBs taking up 25.9 trillion
won.
[Figure 2-4] Outstanding Bonds Held by Foreign Investors
Total KTBs MSBs
100.4 101.4
91.0 94.7 96.2
83.0
74.2 70.4
60.9 56.9 58.3 65.9 67.7
56.4 47.7
27.2 20.0 31.6 34.4 33.2 32.7
28.1 25.4 24.9
2009 2010 2011 2012 2013 2014 2015 2016. 6
The proportion of outstanding bonds held by foreign investors in the entire outstanding bonds remained at 6.8-
7.0% in the first half of 2015, which was a similar level to that of the previous year. In the second half, the
02. 2015-2016 KTB Market ｜ 41
proportion dropped by a small margin to 6.5%-6.6%, and eventually dropped to 6.0% as of June 2016. By type,
foreign holdings in KTBs fell from 15.0% as of the end of 2015 to 13.6% as of June 2016, while that of MSB
Par t 02
dropped to 13.7% from 18.7%.
[Figure 2-5] Foreign Holdings Proportion
Total KTBs MSBs

25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016
In 2015, investments in Korean bonds by foreign investors maintained their stable net inflows overall with a net
investment of 1.0 trillion won. By type, KTB funds recorded a net inflow of 1.8 trillion won and MSBs
recorded a net outflow of 0.5 trillion won. While the easing of central banks abroad like the ECB led to net
investment in KTBs by foreign investors in early 2015, MSBs recorded a net outflow mainly due to redemption.
In May, the outflow of MSB funds turned around to a net inflow following the expanded investment by
international organizations. Although the reduced yield gap due to the outlook of U.S. rate hike and the
weakening of won triggered a substantial capital outflow in July, it slowed down and gradually stabilized over
time. Entering October, the expectation of the U.S. rate hike delay and concerns on China’s economic
slowdown drove stronger preference for safe assets among investors, seemingly bringing the outflows in KTBs
witnessed from June to September to a halt. In December, the U.S. rate hike and year-end factors including
redemptions triggered a net outflow again.
In early 2016, the adjustments some global investors made in their asset portfolios for strategic reasons led
bond investment by foreign investors to post a net selling. Afterwards, the inflow of long-term funds including
that of overseas central banks, led a net buying for three months in a row (March to May). The market volatility
in the midst of the Brexit issue eventually led a net outflow again, especially in MSB funds. As of June 2016,
foreign holdings in bonds is approximately 96.2 trillion won.
[Figure 2-6] Net Investment by Foreign Investors in 2015 & 2016
KTBs MSBs Total
[KRW trillion]
0.0 2.7
0.6
0.1 1.4 1.5 0.8 0.6 0.4 0.0 0.2 0.8 0.0 -0.2 0.3 0.9 1.7 0.4 0.0
0.0 -0.7 -0.7 -0.4 -1.1 -0.6 -0.5 -0.5 -0.6 -0.4 -1.1
-0.6 -1.3
-2.9
-1.2
-3.5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2015 2016
Taking a closer look at the investors, the proportion of central banks (long-term investors) in the entire bond
investment by foreign investors, has been steadily and significantly rising: it increased from less than 10% in
late 2008 to 45.4% in late 2014. As of June 2016, their proportion is 51.0%, placing them as one of the main
investors in Korea’s government bond market.
[Figure 2-7] Foreign Investors by Group
Others Pension funds Global Fund Bank·Securities Central Bank

Insurance
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2009 2010 2011 2012 2013 2014 2015 2016. 6
02. 2015-2016 KTB Market ｜ 43
[Figure 2-8] Outstanding Bonds Held by Foreign Central Banks
Par t 02
(KRW trillion) (%)
Outstanding(left) Proportion(right)
60 60
50 50
40 40
30 30
20 20
10 10
0 0
’09.1 ’10.1 ’11.1 ’12.1 ’13.1 ’14.1 ’15.1 ’16.1
The time-to-maturity of bonds held by foreign investors also became longer. The increased buying of long-term
bonds by foreign investors brought up the average time-to-maturity from 2.90 years as of late 2014 to 3.60
years as of June 2016. By type, KTBs and MSBs posted an average time-to-maturity of 4.71 years and 0.63
years, respectively. Although the average time-to-maturity of bonds held by foreign investors was shortened
when MSBs were on the rise in 2008 and 2009, the full-fledged KTB investments by global central banks and
asset firms have been lengthening the figure since 2010.
<Table 2-4> Major Policies in 2014

(Unit : Year)
Year 2008 2009 2010 2011 2012 2013 2014 2015 2016. 6
Entire
2.45 1.84 2.30 2.43 2.59 2.88 2.90 3.21 3.60
Bonds
KTB 3.99 3.15 3.18 3.03 3.59 4.02 4.04 4.45 4.71
MSB 0.58 0.55 0.65 0.61 0.82 0.85 0.68 0.67 0.63
04 Primary Dealers
Primary dealers (PDs) are institutions that take on market-making obligations, such as offering ask and bid
prices in the secondary market, in return for their granted right to exclusively participate in the primary KTB
market.
Primary dealers are not only in charge of underwriting KTBs; they carry the responsibility of frequently
communicating with the government and participating in policy-making processes. The government hence
requires aspiring PDs or PPDs to meet strict criteria, which include rich experiences in the management of
KTBs, sufficient trading volume, strong financial standing, and the like. The government conducts assessment
of PDs on their KTB underwriting and market-making performances every six months and selects top five PDs
that will receive the deputy prime minister award.
2H, 2014 1H, 2015
Shinhan Investment Corp (1st overall) Shinhan Investment Corp (1st overall)
Daewoo Securities (1st among securities Hyundai Securities (1st among securities
Securities
companies) companies)
Companies
Hyundai Securities (2nd among securities Daishin Securities (2nd among securities
Standard and Chartered Bank Korea Limited Standard and Chartered Bank Korea Limited
Banks (1st among banks) (1st among banks)
Industrial Bank of Korea (2nd among banks) Industrial Bank of Korea (2nd among banks)
2H, 2015 1H, 2016
Daishin Securities (1st overall) Shinhan Investment Corp (1st overall)

Shinhan Investment Corp (1st among securities Daishin Securities (1st among securities
Securities
Companies
Hyundai Securities (2nd among securities Hyundai Securities (2nd among securities
Credit Agricole (1st among banks) Credit Agricole (1st among banks)
Banks
Industrial Bank of Korea (2nd among banks) Industrial Bank of Korea (2nd among banks)
02. 2015-2016 KTB Market ｜ 45
As of June 2016, 19 PDs (9 banks, 10 securities companies) and 4 PPDs are actively participating as market-
Par t 02
makers to revitalize the KTB market.
<Table 2-5> List of PDs and PPDs (as of July 1, 2016)
Classification Institution name
Industrial Bank of Korea, National Agricultural Cooperative Federation, Korea
Banks Development Bank, Hana Bank, Standard Chartered Bank Korea Limited,
(9) Kookmin Bank, Credit Agricole Bank (Seoul branch), ING Bank (Seoul branch),
PD JPMorgan Chase Bank (Seoul branch)

(19)
Kyobo Securities, Shinhan Investment Cor., Daishin Securities, Mirae Asset

Securities
companies Daewoo, Dongbu Securities, Mirae Asset Securities, Samsung Securities, NH
(10)
Investment & Securities, Korea Investment & Securities, Hyundai Securities
BNP PARIBAS (Seoul branch), Yuanta Securities, Meritz Securities, Deutsche

PPD(4)
Bank (Seoul branch)
2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
03
part
Primary Market
1. Overview
2. Auction Method
3. Fungible Issuance
4. Redemption
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
03. Primary Market ｜ 49
01 Overview
Par t 03
Korea Treasury Bonds are issued as fixed-rate bonds and inflation-linked bonds. KTBs, which are fixed-rate
bonds, are issued with five maturities: 3, 5, 10, 20 and 30 years. Inflation-linked KTBs or KTBis, have a 10-
year maturity. In October 2016, KTB with a 50-year maturity was issued (pilot issuance).
KTB auctions are held every Monday to maximize investor’s predictability. 3-year KTBs are auctioned on the
first Monday of every month; 30-year KTBs10)on the first Tuesday; 5-year KTBs on the second Monday; 10-
year KTBs on the third Monday; and 20-year KTBs on the fourth Monday. In the case Monday is a public
holiday, the auction is held on the next business day. As for KTBis11), they are issued through non-competitive
bidding during the two days following the auction of 10-year bonds.
All KTBs are issued as coupon bonds where the coupon interest is paid every six months. Because KTBs are
fungibly issued, their issuance dates are fixed regardless of their auction dates. For example, the issue date of
3-year KTBs issued from June to November in 2016 will all be June 10, 2016. In other words, the issue date of
3- year KTBs auctioned, for instance, on the first Monday of July 2016 will be June 10, 2016. As with any other
bonds auctioned within the above period, their first interest payment will be made after six months of the issue
date on December 10, 2016.
The Korean government announces annual and monthly KTB issuance plans for enhanced market predictability.
The annual issuance plan is announced sometime between December and January of the following year. It
includes information on the total annual issuance volume, issuance proportion of KTBs with different
maturities, major policies newly introduced or revised, and etc. The monthly issuance plan on the other hand is
released by the last day of every month at the latest (usually by the last Thursday of every month). It includes
details on new issuance, buy-backs and/or conversion offers, auction dates, issuance volume, and the like.
As for the tasks related to KTBs (issuance, redemption, conversion, notices, bidding, registration, application
for listing, and so forth), BOK is in charge of them on behalf of the government pursuant to the State Bond Act.
The processes related to KTB issuance is handled through an electronic system, called BOK-Wire+. Bidders
including PD and PPDs use this system to access information on auctions, submit bids, receive results of
auction, make payment for successful bids, apply for registration, and others. Information on auction results are
interchanged between BOK-Wire+ and dBrain while KTB registration and depository information are sent and
received automatically between BOK-Wire+ and SAFE+, the settlement system of Korea Securities Depository.
KTB auctions in the primary market are competitive biddings participated by only primary dealers (PDs) and
preliminary primary dealers (PPDs). With the minimum bid amount being 1 billion won, PDs can only bid in
10) Until 2014, 30-year bonds auctions were held on the auction date of 3-year bonds. They will have separate auction dates starting 2015
11) For the convenience of PDs, purchasing period will be extended from 1 day to 2 days starting 2015
amounts multiple of 1 billion won. Retail investors can underwrite KTBs only through PDs, at the highest
winning rate determined in competitive biddings participated by PDs. The minimum bid unit for them is
100,000 won.
The settlement of accepted bids is conducted the next business day of the auction date. Competitive biddings
12)
are held between 10:40 and 11:00 on the auction day. For non-competitive subscriptions, requests are made
between 12:00 and 15:00, if on the day of competitive biddings, between 09:00 and 15:00 if during the first two
business days following the competitive biddings, or between 9:00 to 12:00, if on the third business day.
[Figure 3-1] Bidding and Issuance Process
① Entrusted ② Electronic
Issuance bidding(D-1)
dBrain BOK-Wire+ PDs
Transfer and
reception ④ Registration to ③ Deposit to government’s
of bidding government checking account held by BOK
information bond register (D-day)
③ Apply
‌ for collective registration
of KTBs(D-day)
④ Notification of deposit to
government’s checking account
(D-day)
⑤ Confirmation on the collective registration list
⑦ Confirmation
‌ on depositor’s
account book
KSD
(SAFE+)
⑥ Registration of depositor’s account book
12) As
‌ 3-year and 30-year bonds have separate auction dates starting 2015, the auction hours for 3-year bonds have changed to 10:40 to
11:00.
02 Auction Method
Par t 03
(1) Competitive Bidding
In the past, when the government bond market was underdeveloped, the authorities required financial
institutions to underwrite KTBs. As the market developed more in the aftermath of the 1997 Asian financial
crisis, the government began to issue bonds through competitive biddings in July 1999. The conventional
(multi-price) auction method was used until July 2000, in which multiple rates were submitted and bidders who
offered the lowest yields became winners up to the point the total amount reached the intended issue volume.
Using this method, successful bidders purchased bonds at the yield they submitted.
To minimize the possibility of the winner’s curse and encourage active participation in auctions, the government
introduced the Dutch auction method in August 2000. Under this method, the highest yield submitted by bid
winners uniformly applied to all the winners.
This, however, caused distortions in the bid-to-cover ratio due to overheated competition. The winners often
incurred losses, eventually pushing down the bid-to-cover ratio. The differential-price auction method was
introduced in June 2009 as a result, which combined the pros of both conventional and Dutch auctions.
The differential-price auction method aligns bid rates lowest to highest and divides them into different groups
at intervals of, for example, three basis points. The highest rate of each group becomes the winning rate for that
group. Such method helps PDs to submit reasonable rates and reduces their underwriting burden.
<Table 3-1> Example of Determining Winning Rates

Issued amount：80 billion won
Highest winning rate：5.050% suggested by Institution E
Groups：(5.050~5.025%), (5.020~4.995%), (4.990~4.965%)
Winning rate
Bidding
Bidding conditions
institution
Dutch Conventional Differential-Price
A 4.990%, 20 billion won 4.990% 4.990%
B 5.000%, 20 billion won All 5.000%

5.020%
C 5.010%, 20 billion won 5.050% 5.010%
D 5.030%, 10 billion won 5.030%

5.050%
E 5.050%, 10 billion won 5.050%
F 5.070%, 20 billion won Failed bid Failed bid Failed bid

For example, if the highest winning rate is 5.050%, the bid yields are divided into groups of “5.050 to
5.025%”, “5.020 to 4.995%”, and “4.990 to 4.965%”. Each group’s highest bidding yield - 5.050%, 5.020%,
and 4.990%, respectively- becomes the winning rate.
Thanks to the change in the auction method, the bid-to-cover ratio of KTBs, which had been steadily falling,
rose sharply to a level typically seen in advanced countries. It was barely above 100% in early 2009, but rose to
200% in September the same year the auction method was introduced. It surpassed 300% in 2010 and continues
to hover around 400% since.
<Table 3-2> Bid-to-Cover Ratio

(Unit : %)
Year 2009 2010 2011 2012 2013 2014 2015 2016. 6
Bid-to-cover ratio 156.7 304.7 386.0 464.9 412.1 409.1 372.7 393.0
(2) Non-Competitive Subscription

To enhance the market-making function of PDs, PDs are allowed to underwrite KTBs through non-competitive
bids up to three business days after the competitive bidding. Unlike in competitive biddings where bidders
submit low bid rates, PDs underwrite KTBs at a rate already decided.
Only PDs that purchased KTBs through competitive auction can participate in non-competitive subscription.
They are allowed to underwrite up to a certain percentage (non-competitive subscription ceiling ratio) of what
they underwrote at the competitive auction. In April 2015, the non-competitive subscription ceiling ratio based
on monthly PD assessment results was newly introduced by partially adjusting the existing ceiling ratio based
on the semi-annual assessment. Based on their semi-annual assessment results, PDs (1st to 5th place) can
underwrite up to 20%; PDs (6th to 10th place) up to 15%; and PDs (11th to 15th) up to 10%; and the remaining
up to 5%. The top five PDs in monthly performance assessment are given an additional 10% to underwrite.
As KTB issuance volume had to increase due to the 2015 supplementary budget, the government decided to
promote underwriting by temporarily adjusting the monthly non-competitive subscriptions ceiling ratio to
15%p and 5%p for the top five PDs and the next five, respectively.
(3) Auction Participation by Retail Investors
Par t 03
Retail investors can underwrite KTBs through PDs after opening an account at the institution (PD). Upon the
auction announcement, they should submit the amount they wish to purchase to the PD by the day before the
competitive bid. The minimum bid amount is one hundred thousand won and the maximum is one billion won.
Retail investors participating in the auction are allocated KTBs preferentially within the maximum range of
20% of the amount scheduled to be issued. Unlike PDs, they do not submit bid rates but underwrite at the
highest winning rate set at the competitive bidding.
03 Fungible Issuance
Under fungible issuance, bonds issued within a set period of time have the same terms (maturities, coupon
rates, etc), and they are considered and treated as a single bond.
For example, 3-year KTBs that have a fungible issuance period of six months are newly issued in June and
December. After being issued on December 10, 2014 through an auction held on December 1, 2014, they are
issued again on January 5, February 2, March 2, April 6, and May 4, 2015 with the same terms. Despite
different auction dates, their issue terms are identical, and they are traded as the same bond in the secondary
market.
The objective of fungible issuance is to increase the supply volume of each of the bond types and their liquidity,
so that the government’s funding expenses can be reduced and proper, credible benchmark rates can be formed
(in general, the increase in issuance volume of a single bond type leads to the increase in liquidity, which in
turn, leads to lower rates).
Before the introduction of fungible issuance, too many different bond types yet low trading volume drove
liquidity shortage. As all KTBs were newly issued as different bond types, benchmark (on-the-run) bonds could
not serve their role long enough, causing discontinuation of yields.
As a result, the Korean government launched the fungible issuance with KTBs that were to be issued beginning
May 2000 (fungible issuance period of 3 months). After the introduction of fungible issuance, the average
issuance volume of each bond type increased from 1.4 trillion won at the time to 12 trillion won as of June
2016.
[Figure 3-2] Number and Average Amount of KTBs Issued
Average Amount(right) Issuance Number(left)

16 15 16
14 14
12 14 14
14 13
12 11 13 13 12
12
12
10 11 11 10
10
8 8
7 9
8 7 7 7 7 7 8
6 6 6
7 5 5
6 5 6
6
4 4
2 2
2
1 3
- -
’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16.6
By 2014, the fungible issuance period of 3-and 5-year KTBs was extended to six months, and that of 10-year
KTBs was reduced from one year to 6 months in March 2013 as 10-year KTBs became the benchmark bond.
The fungible issuance period for 20-and 30-year KTBs and KTBis was shortened from 2 years to 1 year in July,
2015.
<Table 3-3> Types and Issuance Volume of KTBs
No. of annual new Month of new

Maturity Fungible issuance period
issuances issuance
3-year Twice a year June, December 6 months (Jun. to Nov., Dec. to May of next year)
5-year Twice a year March, September 6 months (Mar. to Aug., Sept. to Feb. of next year)
10-year Twice a year June, December 6 months (Jun. to Nov., Dec. to May of next year)
20-year Once a year September 1 year (Sept to Aug. of next year)
30-year Once a year March 1 year (Mar. to Feb. of next year)
KTBi Once a year June 1 year (Jun. to May. of next year)

04 Redemption
Par t 03
(1) Redemption of KTBs
Redemption refers to the process of returning the principal and paying the remaining interest to bondholders.
For KTB redemption, BOK deposits the principal and interest in the checking account of Korea Securities
Depository (KSD) on the redemption date. KSD then deposits the same principal and interest in the checking
accounts of the bondholders (or banks) held at BOK.
[Figure 3-3] Redemption Process of KTBs
④ Deposit
‌ principal and interest
into KTB-holding institution’s
checking account at BOK
KTB-holders
① Entrust redemption task

⑤ Deposit
‌ principal
and interest
Government BOK KSD Bank
② Deduct from government’s ③ Deposit principal and ④ Deposit

‌ principal and interest into the
checking account interest
‌ into checking banks’ checking account at BOK
account
While most KTBs are repaid the maturity date, the government employ buy-backs and conversion when
necessary to prevent heavy loads of KTBs maturing at one time and control the level of liquidity in the market.
(2) Buy-backs
Buy-backs refers to the government purchasing back KTBs before the maturity date, which was first introduced
in December 2000. In the event that the maturities of KTBs are heavily concentrated on a certain point in time,
the need for issuance to refinance the debt increases substantially, which can lead to market disruptions such as
extreme fluctuations in interest rates. Likewise, buy-backs are employed to distribute their maturities, increase
liquidity, and reduce roll-over risks.
In most buy-backs, the government purchases KTBs from PDs through reverse auctions. When necessary,
bonds can be directly purchased from the holders.
In competitive bids for buy-backs, there is no ceiling in bid amounts for the PDs. The minimum bid amount per
bond type is one billion won (par value), and PDs can bid in multiples of one billion won. The winning bid
rates of buy-backs are determined using the differential price auction method. Bid rates received are aligned
and divided into groups in an interval of 3 bp. The lowest bid rate in each group becomes the winning rate for
the entire bids in that group.
<Table 3-4> Annual Buy-Back Volume

(Unit : KRW trillion)
Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016.6
Amount 5.0 6.3 5.7 7.6 13.3 10.0 19.4 22.3 12.0 5.6 5.2 12.1 1.1
(3) Conversion Offers

Introduced in May 2009, conversion refers to the government issuing new KTBs and switching them with off-
the-run KTBs.
Through conversion offers, the government purchases existing KTBs from PDs and issues new KTBs at the
same time. The differences in value are settled in the switching process.
The benefits of conversion includes preventing large debt from maturing at one time and improving liquidity by
increasing the supply volume of benchmark or on-the-run KTBs.
At the competitive auction for conversion, the minimum bid amount is 1 billion won (par value) and bidders
can bid in multiples of 1 billion won. As with buy-backs or other competitive auctions for KTBs, the winning
rate is determined using the differential price auction method. The yield for the new bond being issued will be
Par t 03
the arithmetic mean (excluding highest and lowest yield, precise to three decimal places) of one-the-run yields
reported by PDs to Korea Exchange by 15:30 on the day before the auction.
<Table 3-5> Yearly Conversion Offer Volume of KTBs

(Unit：KRW trillion)
Year 2009 2010 2011 2012 2013 2014 2015 2016.6
Amount 5.6 2.9 4.8 1.9 2.9 3.1 4.6 3.8

2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
04
part
Secondary Market
1. Overview
2. Types of Secondary Market
3. KTS
4. OTC Market
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +

04. Secondary Market ｜ 61
01 Overview
Par t 04
After purchasing KTBs in the primary market, investors cannot claim their principal and interest until maturity.
Those wishing to cash bonds can do so on the secondary market, where previously issued bonds are traded
between investors.
The secondary market provides opportunities for bondholders to profit from selling bonds. It also promotes fair
price formation of bonds, increases their value as collateral, affects the price of bonds in the primary market,
and the like.
As liquidity of bonds in the secondary market can be a strong indicator of their value and a big factor in
determining future issue prices, development of the secondary market is crucial for the efficient issuance of
KTBs.
02 Types of Secondary Market
Within the secondary bond market, several types of markets exist: direct search market, broker market, dealer
market, auction market, and others.
The direct search market is takes on the most simple form where investors directly search for trading
counterparts and bear the expenses that occur from the process of searching and bargaining. As bonds are not
traded continuously in this market, third parties like brokers and dealers are not motivated to play in this
market.
The broker market is where investors indirectly participate by entrusting brokers (proxies) with finding their
trading counterparts. Unlike dealers, brokers do not use their own accounts for bond trade. They simply look
for trading counterparts, negotiate prices for their clients, and receive commission fees in return. Bond brokers
can be divided into inter-dealer brokers, who act as intermediaries among dealers, or general securities brokers,
who serve as proxies for retail investors.
The dealer market is where dealers, or mainly financial institutions, trade on their own accounts and bear risks
by serving as the clients’ trading counterparts themselves. In this market, dealers have the advantage of instantly
trading bonds according to bid or ask prices they offer, where profit from bid-ask spreads.
The auction market is an order driven market in which buyers and sellers enter competitive bids at the same
time. All market participants gather together offline or online, communicate their trading intentions, and swiftly
complete trades. Pros of this market include fast deal executions, sparing of expenses in searching for trading
counterparts, narrowed bid-ask spread, and others.
Korea’s secondary government bond market divides into the KRX and OTC markets. The KRX market is an
auction market and the OTC market are both broker and dealer markets.
[Figure 4-1] KTB Secondary Market
KTB
Trading market
One-to-one Competitive
Trading market Market
Direct search Broker Dealer Auction

Market Market Market Market
OTC Market
KRX
(Broker or Dealing)
Simple Broker Trade Broker Standardized Regular Market

03 KTS
Par t 04
(1) Overview
The KRX Trading System for government securities (KTS) is a specialized electronic platform for KTB
trading, established by the Korean Exchange (KRX) in March 1999, with the support from the government to
vitalize the KTB market and increase transparency. KTS is a complete competitive bidding market where
dealers trade in large volumes.
As PDs designated by the government serve as market-makers on KTS, continuously offering bid and ask
prices for KTBs, market participants who wish to trade can buy and sell bonds of their choice at any time.
(2) KTS Policy

KTS is an electronic market platform where dealers can directly trade online. Buy and sell orders submitted by
each of the dealers are displayed on screen in real time, and trades are completed anonymously. Main
participants are securities companies and banks that acquired approvals for debt security membership of Korea
Exchange.
Dealers can simply install a free trading software program developed by KRX, access the platform, and trade
online. While bonds traded on KTS are KTBs, Monetary Stabilization Bonds (MSBs), and Deposit Insurance
Fund bonds, KTBs account for approximately 91.3% of the trading done at the Exchange. The trading unit is
one billion won.
<Table 4-1> KRX Trading System
Classification Details
Trading hours 9:00 to 15:30
Bonds traded KTBs, MSBs, Deposit Insurance Fund Bonds
Trading unit Multiples of one billion won
Price suggestion (time-to-maturity <2 years: 0.1 won, >2 but <10 years: 0.5 won,
Quotation method
>10 years: 1 won)
Order matching method Individual multiple price-based competitive bids

Government bond dealers (banks and securities companies), entrusted

Participants
participants (retail institutions)
Settlement day T+1 day
(3) Evaluation
Ever since its establishment in 1999, the government’s policies to invigorate the market and PD’s active role as
market-makers helped KTS achieve remarkable growth both in quality and quantity.
The trade volume, which was merely 10.1 trillion won in 2001 rose to 1,684.6 trillion won in 2015, recording a
160-fold increase.
[Figure 4-2] KTB Issuance and Trading on KTS

(Unit: KRW trillion)
Trading volume (right) Issuance volume (left)

120 1800
1600
100
1400
80 1200
1000
60
800
40 600
400
20
200
0 0
’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15
In addition, the environment in which market participants can trade the desired volume without unfavourable
price changes was created following the increased number of quotes and reduced bid-ask spreads.
Likewise, KTS is considered to have not only reduced trading costs but also increased market transparency by
enabling electronic competitive auctions and real-time display of prices and yields of completed trades.
<Table 4-2> Bid-Ask Spreads of KTB Benchmarks on KTS

(Unit: KRW)
Par t 04
’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16.6
3-year KTB 9.6 6.2 1.9 1.3 1.1 1.2 1.2 1.1 1.0
5-year KTB 16.5 13.3 3.2 1.5 1.1 1.3 1.1 1.1 1.1
10-year KTB 31.1 23.0 7.2 3.5 2.1 2.7 1.9 2.0 21.6
20-year KTB 79.2 73.5 18.7 13.8 8.2 9.6 8.0 8.5 6.8
30 year KTB - - - - 64.1 22.9 11.2 12.8 10.0
Total 34.1 29.0 7.8 5.0 3.1 3.7 3.1 5.1 4.1
* Average of intra-day spread. KTBi is excluded from 10-year KTBs.
The efficient work performance and close cooperation between the government and market participants helped
KTS achieve substantial growth. The government, for its part, laid the foundations to nurture the competitive
trading market using the electronic trading system, breaking away from past practices of one-to-one trading led
by brokers. Primary dealers, as market-makers, continue to inject liquidity into the market by submitting bid
and ask prices of bonds with different maturities (3, 5, 10, 20, 30-year).
In addition, PDs provide the on-site market information (demand, market trends and conditions, etc) necessary
for the devising and execution of policies. The government and PDs hold consultative meetings together
regularly to discuss areas of improvement in the regulations for the primary and secondary market, and propose
policies.
04 OTC Market
(1) Overview
The over-the-counter market encompasses dealer, broker, and direct search markets, and the others, where one-
to-one trades are conducted mainly over the counters of financial institutions like banks and securities
companies. It can be understood as including all the markets except the KRX bond market.
From a market participant’s perspective, the KRX market is driven primarily by PDs while the OTC market can
be participated by any financial institutions engaged in investment and trading. The Korea Financial Investment
Association (KOFIA) is the managing authority of the OTC market.
While the KRX bond market was established and institutionalized to meet policy goals such as protecting
investors, enhancing transparency, and serving as a regulated trading market, the OTC market was
autonomously created, which the government only later began to regulate. As such, the main characteristic of
the OTC market is that it is market-driven, where past practices are a powerful momentum.
(2) Current Status

In the OTC market, KTBs account for 51.2% (as of June 2016) of the entire trading and are used as benchmark
bonds. Monetary stabilization bonds (23.2%) are also actively traded. Trading of corporate bonds, which
accounted for more than half of the secondary market before the 1997 Asian financial crisis, fell markedly
following the growth of the KTB market and the active liability management by companies. Their trading
volume accounts for 3.2% in the OCT market as of June 2016.
<Table 4-3> OTC Trading by Bond Type

(Unit：KRW trillion, %)
Par t 04
2011 2012 2013 2014 2015 2016.6
Vol % Vol % Vol % Vol % Vol % Vol %
Government
3,141.9 54.4 3,310.3 56.1 3,611.2 59.3 2,903.4 55.9 2,931.4 56.0 1,370.2 55.0
bonds
KTBs 3,048.6 52.8 3,181.9 54.0 3,432.5 56.4 2,706.5 52.1 2,735.8 52.3 1,275.3 51.2
Municipal
11.7 0.2 14.4 0.2 14.9 0.2 14.7 0.3 17.0 0.3 7.2 0.3
bonds
Special low
238.6 4.1 379.2 6.4 341.4 5.6 311.4 6.0 277.2 5.3 130.1 5.2
bonds
MSBs 1,596.3 27.6 1,469.7 24.9 1,386.7 22.8 1,208.3 23.3 1,257.9 24.0 578.1 23.2
Bank
587.7 10.2 505.2 8.6 528.3 8.7 572.7 11.0 604.0 11.5 324.8 13.0
debentures
Corporate
200.6 3.5 217.6 3.7 206.6 3.4 184.9 3.6 143.7 2.7 80.1 3.2
bonds
Total 5,776.9 100 5,896.5 100 6,089.1 100 5,195.5 100 5,231.1 100 2,490.6 100
* Source：KOSCOM check, trading vol: double-count method.
(3) Trading Method

While retail investors can participate in the OTC market, institutional investors (financial institutions, pension
funds, etc.) and corporations trade by far the largest volume. The customary trading unit is a face value of ten
billion won. There are no restrictions in trading hours, but they are generally between 8:30 and 15:00, the
regular business hours of financial institutions.
Bond trading in the OTC market is mostly conducted via online messenger and telephone, where traders
exchange real-time trading information and negotiate.
<Table 4-4> Comparison of KTS and OTC Market
Classification KTS OTC market
Participants Dealers Brokers
Competitive Bidding Negotiated Trading

Method of Trading
(Dealer-KRX-Dealer) (Institution-Broker-Institution)
Means of Trading Electronic system Online messenger, phone
Method of Ask Price Ask price (along with yield) Ask yield (along with price)
Trading Unit 1 billion won Usually 10 billion won
Trading Hours 09:00~15:30 Usually 08:30 to 15:30
Date of Settlement T+1 Within 30 days (T+ T~30)
Real-time net settlement Gross settlement

Method of Settlement
(comparatively smaller settlement amount) (comparatively larger settlement amount)
(4) Major Systems

To reduce market participants’ price search costs and increase the transparency of the secondary market, the
Korean government and KOFIA currently run a public disclosure system that releases OTC bond trade details,
and the bond quotation system (BQS). A system called “FreeBond” is also in operation to assist market
participants’ trading.
A. Public disclosure system of OTC bond trade details
Based on the public disclosure system, securities companies trading bonds in the OTC market report trading
details to KOFIA within 15 minutes of concluding trade contracts. KOFIA then discloses the received
information to the market.
In the past, details of bond trade during the day were all reported to KOFIA after 15:00, off the regular trading
hours. This meant that the trade information was not able to be used during that day’s trading hours.
The Korean government modified the regulations on the public disclosure of OTC bond trade in 2000 so that
the reporting can be more systematic and OTC trading can be more transparent. Trade details that must be
reported included the bond number, yield, unit price, trade volume, type of trade, and so forth, which were to be
reported within 30 minutes of concluding transactions. The reporting time was shortened to within five minutes
Par t 04
of concluding contracts in 2001, but was revised to within 15 minutes in 2002. As of now, it remains within 15
minutes (the public disclosure system is also called “15-minute rule.”) The disclosure system is considered to
have contributed to reduced price search costs and greater transparency in the bond market.
B. Bond Quotation System (BQS)
The BQS is a system in which securities companies report information on quotations of all bonds traded in the
OTC market to KOFIA in real time, and KOFIA discloses the information to the market immediately.
Previously, domestic bonds were traded mainly by institutional investors in the OTC market, and bid-ask prices
were offered through private messengers. This made it difficult for market participants to obtain fair and timely
trade information, and new participants had difficulties entering into trade as well.
In response, the BQS was introduced in December 2007 to ensure transparency of bond price information in the
OTC market. Securities companies and brokers now send bid-ask prices to KOFIA immediately when they
offer prices in the market. KOFIA discloses the received bid-ask price information (time of price offering, bond
number, bid-ask price, type of trade, and volume) on its web site (www.bqs.or.kr).
C. Disclosure of Last Quoted Yield
The last quoted yield is an arithmetic mean (calculated by KOFIA) of final quoted yields (in case of no
completed deal, quoted yields) of bonds that represent the OTC market reported by securities companies. It is
the average of the trading yields submitted by each of the securities companies.
Every six months, KOFIA designates financial institutions (securities companies, etc.) actively engaged in bond
trading as reporting institutions, and have them report their final quoted yields. Designated institutions report
yields as of 11:30 and 15:30 every business day, and KOFIA calculates the arithmetic mean excluding the top
and bottom yields, which is announces at noon and 16:00.
<Table 4-5> Bonds Subject to Yield Report
Classification Type Time-to-maturity
Type 1 National housing bond

4 years & 6 months - 5 years & 1 month
(5-year)
10 months - 1 year
KTB (1-year)
2 years & 6 months - 3 years
KTB (3-year)
Government bonds 4 years & 6 months - 5 years
KTB (5-year)
9 years & 6 months - 10 years
KTB (10-year)
18 years - 20 years
KTB (20-year)
28 years - 30 years
KTB (30-year)
MSB (91-day) 85 days - 91 days
MSBs MSB (1-year) 10 months - 1 yr
MSB (2-year) 1 year & 9 months to 2 years
Special law bonds KEPCO bond (3-year) 2 years & 9 months - 3 years
Industrial financial debenture

Bank debenture 10 months - 1 year & 1 month
(1-year)
Corporate bond
Corporate bonds (AA-) 2 years & 9 months - 3 years
(non-guaranteed 3-year)
Corporate bond
Corporate bonds (BBB-) 2 years & 9 months - 3 years
(non-guaranteed 3-year)
Commercial Bank CD (91-day) 91 days

Certificate of deposit
Special Bank CD (91-day) 91 days
Commercial paper Commercial paper (91-day) 85 days - 91 days

D. FreeBond
Par t 04
FreeBond is an electronic system run by KOFIA since 2010 to assist OTC bond market participants with search
and negotiation of bid-ask prices.
It consists of a specialized messenger and a trading board (T-Board). The messenger replaces the private
messengers used in bond trading, and provides extra functions such as group chat, saving of chat, and others.
Through the trading board, users can search bid-ask prices, place order, negotiate, and finalize deal. It also
provides useful data screens.
FreeBond has been substantially improving the OTC bond trading structure. By adopting the system that boasts
higher level of information security than private messengers, the government anticipates greater convenience
and security in bond trading for its users.
2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
05
part
Government Bond Market

Infrastructure
1. Overview
2. Bond Listing System
3. Bond Registration and Deposit System
4. Standard Securities Codes
5. Clearing and Settlement System
6. Mark-to-Market Evaluation
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
05. Government Bond Market Infrastructure ｜ 75
01 Overview
Par t 05
Development of the bond market requires not only policies but also the infrastructure that ensures smooth
issuance and trading of bonds. As successful implementation of bond-related policies requires support from the
overall infrastructure of the market, it can be said that the infrastructure functions as the hardware of the bond
market.
While domestic bond trade is spurring quantitatively, the nature of it is also becoming more sophisticated,
raising the importance of an efficient bond system. In this light, the Korean government has been continuously
establishing institutional foundations for the development of the bond market.
To ensure efficient management of bonds, the government introduced bond listing system and standard
securities codes, and is operating bond registration and deposit systems for efficient trading and settlement. It
has also put in place the clearing and settlement system to minimize risks of settlement failures in trading
processes, and introduced mark-to-market (MTM) evaluation to promote trade through fair bond pricing.
02 Bond Listing System
(1) Implications of Listing

Listing of bonds refers to the qualifying of issued bonds for trading in the bond market established by KRX. To
ensure smooth bond trading and protect investors, KRX requires certain conditions to be met for bonds to be
listed.
Application must be submitted to KRX to have a bond listed. Although there is no institutional disadvantage for
bonds not listed, listed bonds carry many advantages such as being used as substitute securities and the like. For
this reason, most issuers choose to list their bonds on KRX.
(2) Merits of Bond Listing

Information on the issuer of listed bonds and bond it has issued in that year is disclosed to general investors
through KRX. This allows the issuers to gain much public trust compared to those who have not listed their
bonds.
In addition, listed bonds are substitute securities that can be used as customer margin13) when trading equity,
futures and options, or as deposits for public tender or contract with public entities in Korea. Based on the
public confidence listed bonds brings, most institutional investors such as banks and investment trust companies
limit the scope of their bond investments to listed bonds.
(3) Listing of KTBs

Issuers wishing to list bonds must submit an application with supporting documents to KRX. While bonds to be
newly listed must be reviewed pursuant to the Regulations on Listing in the Securities Market set forth by
KRX, government bonds are waived of this procedure taking into account their special purpose defined in
related laws. In the case of government securities, BOK currently files the application for the listing of KTBs
on behalf of the government. Usually, listing is requested on the auction day and the bond gets listed the next
day, which is the issue date. The following table shows the dates for listing, adjustment of listing amount, and
delisting (process of government bond issuance to redemption).
<Table 5-1> Listing and Delisting Date of KTBs
Non-
Issuance Buy-back Conversion Redemptionat maturity
competitive bidding
Settlement
T+1 T+1 T+2 T+2 T
date
Listing/ issuance: T+2

Delisting T+1 T+1 T+3 T+1
date redemption: T+3
* T : Auction date, exercising date of non-competitive bid options, redemption date at maturity
When listed, details of the bond such as the issuance date, redemption date, listed amount, coupon rate, and so
forth are provided to investors through the KRX webpage and financial information providers.
13) ‌Acceptance ratio of listed bonds as substitute securities: 95% of government bonds, local government bonds, special bonds, and finance
corporate bonds, 85% of corporate bonds, 80% of equity-related bonds.
Meanwhile, government bonds, local bonds, and special bonds, continuously issued throughout the year on a
certain day of months, are listed in a lump (called “Batch Listing”) by KRX for issuer’s convenience on listing
Par t 05
requests. Under the batch listing system, issuers set the annual issuance plan for next year at the end of every
year and request for batch listing. Then, KRX lists the planned monthly issue volume at the beginning of every
month without extra request procedures. At the end of every month, KRX receives the final issue amounts from
banks and makes adjustments accordingly. Currently, among government bonds, National Housing Bonds are
listed through the batch listing system.
03 Bond Registration and Deposit System
(1) Bond Registration

Bond registration refers to the system in which bondholders or parties of interest ensure their rights as creditors
by recording them in the bond registration book at the registrar, instead of possessing the actual physical
securities. Bond owners can claim there rights against the issuers and third parties by registering the details of
transactions, pledges, liens and entrustments on the register.
[Figure 5-1] Bond Registration Procedure
① Designate a registrar (issuer → registrar) Financial Supervisory

Service (FSS)
② Conclude
‌ a principal & interest-paying agent contract (issuer → principal &
interest-paying agent)
③ 14)
③ Submit a marketable securities Report (issuer → FSS)
Principal and ② ④
④ Subscribe and apply for registration (underwriter → issuer) interest-paying Issuer Underwriter
agent
⑤ Notify registered issue details (issuer → registrar) ①
⑤ ⑦
⑥ Issue a registration certificate and notify registration details
(registrar → underwriter) ⑧ ⑥
Registrar
⑦ Notify registration details (registrar → issuer)
⑧ Notify registration details (registrar → principal & interest-paying agent)
14) Submission of securities declaration of major public bond including government bond is exempted
Globally, bond issuance and trade without actual physical securities has increasingly become a trend. The use
of the electronic registration system reduces the burden on all involved parties like issuers, investors, and
depositories in the management and transfer of the actual bonds, promoting bond trade and efficiency in the
market. Within the securities market, the expenses associated with handling, transporting, and maintaining the
custody of bonds are spared, as well as the substantial indirect social costs such as counterfeit securities. Most
of government bonds in Korea are issued through this registration system. The registration of government
bonds15)and MSBs are managed by BOK, and other public and corporate bonds by KSD.
(2) Bond Deposit and Mass Registration

Deposit is the receipt and management of marketable securities by the Central Securities Depository (CSD)
based on the contract between CSD and the depositor.
The bond deposit system was introduced to simplify process in the mass circulation of marketable securities in
line with the development of the securities industry and prevent incidents like thefts and losses that can possibly
occur during circulation. Shortening the distribution channel can bring benefits such as the improvement of
liquidity. Currently, based on the laws on capital market and financial investment, securities—the inherent
assets of financial investment companies including securities firms and their customers—must be deposited to
KSD.
The bond deposit system was designed to boost convenience and safety in trading by enabling compilation,
management, and exercise of rights of bonds through the depository body regardless of registration or
physically issuance. On the other hand, the bond registration system protects the rights of bondholders and is
focused on issuance-related tasks. The combination of the two aforementioned systems is the mass enrollment
system.
KTB issuance and trading follow the mass enrollment system where BOK registers on bond register under the
name of KSD, and KSD makes entries on the depository accounts of bondholders. Investors that have
depository account of KSD are not required to register separately.
15) NHBs are registered through KSD

[Figure 5-2] Collective Registration of KTBs
Par t 05
Corporate bonds
KSD
Local bonds
Financial bonds
Register Registered under the Record of securities to
Special bonds
name of KSD client’s account
National Housing Bonds
BOK
KTBs
MSBs Registered under the Record of securities to
Register
name of KSD client’s account
* Financial markets in Korea, BOK
Securities companies record holdings of marketable securities of clients by making entries to clients’
accounts,16) and deposit the securities to KSD after specifying they are owned by their clients. To protect clients’
rights, securities are considered to be deposited at the point of securities companies making entries to their
clients’ accounts.
04 Standard Securities Codes
With the rapid increase in trading of international securities and the use of the electronic system, all securities
are now given the International Securities Identification Number (ISIN) to boost convenience in trading,
deposit, and management of securities products. In Korea, KRX is responsible for issuing standard securities
codes and handles the code issuance and management tasks in accordance with the “Management Criteria on
Standard Codes of Securities and Financial Instruments.”
16) Institutional investors participating in the primary and OTC market usually hold their depository accounts of KSD in their own name
[Figure 5-3] Process to Grant ISIN in Korea
Rejection Apply for ISIN http://lsin.krx.co.kr
rejection when major

errors are found Check to determine propriety and
Check ISIN application correct minor errors by phone
details when such are found
ISIN Granted
Notification to Issuer/ Notify the results of granting ISIN by

Underwriter email and the ISIN system
The most important characteristic of standard securities codes is their sole uniqueness. A single security is
granted a unique 12-digit alpha-numeric ISIN that is recognized throughout the world. The first two digits
consist of letters identifying the country; the following nine digits consist of 1 digit representing the type of
securities, 5 digits representing issuer, and 3 digits representing the product feature; the last one digit is the
check code used for error detection.
<Table 5-2> Basic System of ISIN
Country code (2 digits) Basic code (9 digits) Check code (1 digit)
‘KR’ for Korea Different for each security Double-Add-Double method
* Examples of country codes of major countries - U. S. (US), Great Britain (GB), Germany (DE), Japan (JP), Singapore (SG)
In basic code, the first digit is “1” (government bond); the following 5 digits are composed of the bond number
codes (3 digits) and the monthly issuance precedence codes (2 digits); the last 3 digits consist of interest rate
payment code (1 digit), an issuance year code (1 digit), and an issuance month code (1 digit). The basic code is
followed by a 1-digit check code.
<Table 5-3> ISIN of KTB 02750-1606 (13-3)
Par t 05
Country code Attribute code Unique code of issuance Bond type code Check code
(2 digits) (1 digit) (5 digits) (3 digits) (1 digit)
KR 1 0 3 5 0 1 G 3 6 4
Republic of Government Bond name and issuance Coupon bond and

Error detection
Korea bond precedence in month issuance year/month
<Table 5-4> ISIN of Type 1 National Housing Bond
Country code Attribute code Unique code of issuance Bond type code Check code
(2 digits) (1 digit) (5 digits) (3 digits) (1 digit)
KR 1 0 1 5 0 1 D 3 9 7
Republic of Government Bond name and issuance Compound bond and

Error detection
Korea bond precedence in month issuance year/month
05 Clearing and Settlement System
(1) Overview
Upon trade contract in the bond market, the buyer-seller relationship between trading parties is formed. The act
of clearing this relationship through delivery and payment for securities is called “‘settlement.” Settlement
procedures for government bond trade can be Free of Payment (FOP) or Delivery versus Payment (DVP)
depending on the linkage between the delivery and payment.
Free of Payment (FOP) is a settlement method where the delivery and payment for securities are carried out
separately. Due to the time difference in the delivery and payment, counterparts are inevitably exposed to risks.
In other words, the one who carries out its own obligation (securities delivery or payment) prior to the other
ends up taking the risk. Hence FOP always carries settlement risks (or primarily the principal risk).
Delivery versus payment (DVP) is a settlement procedure that minimizes settlement risk through simultaneous
delivery and payment of securities. Even if there is time difference between the two, it is still usually considered
to be DVP if it has a safety mechanism put in place that can control the resultant settlement risks and cannot
avoid the time difference for technical reasons.
DVP method is used both in the KRX and OTC markets. In the case of the OTC market, FOP method is used in
special cases including the request from settlement participants.
(2) Risk Mitigation through Clearing Agencies

In both KRX and OTC markets, the settlement institutions are BOK (payment settlement) and KSD (securities
settlement). However, they have different settlement dates, netting methods, and settlement assurance.
<Table 5-5> Settlement Method in KRX and OTC Market
Central settlement
Securities
Settlement date Netting method and assurance of Payment
settlement
settlement
KRX T+1 day17) Multilateral netting KRX BOK KSD
OTC T ~ T+30 days Bilateral netting - BOK KSD
* T : Trading date
As the OTC market mainly involves cross trade between individual institutions, there are various settlement
dates, and it uses the bilateral netting method. As settlement is not guaranteed by a third party, both trading
parties are exposed to a series of potential risks such as payment delay or failure, and liquidity crunch.
On KTS (KRX Trading System for government securities), the multilateral netting method is used as the market
involves competitive trade. The Korea Exchange not only has been responsible for establishing and operating
the market but also serving as the Central Counterparty (CCP), in charge of settlement. As a CCP, the Exchange
confirms the details of bond trade and underwrites the debt obligation for clients. Such type of debt take-over
reduces CCP’s settlement risk using the mulitilateral netting system.
To compare bilateral netting and mulitilateral netting using [Figure 5-4], under the bilateral netting, the
17) If the T+1 is the deadline date of accumulating reserve funds of BOK, the payment is made on the next business day, T+2.
settlement volume of customer A against others is ‘14,’ and A’s settlement risk size (RA) against others is ‘24.’
On the other hand, A’s settlement volume comes to ‘0,’ and its risk size against others becomes ‘10’ under the
Par t 05
multilateral netting through CCP. The actual risk against others also becomes ‘0’ as it refers to one against the
CCP18).
[Figure 5-4] Comparison of Bilateral Netting and Multilateral Netting
<Bilateral Netting> <Multilateral Netting>
A 8 B A B
R A = 24 R B = 22 R A = 10 RB = 6
10 6
6 16
24 14 CCP
2 14
C D C D
R C = 22 6 RD = 6 RC = 0 RD = 0
To prevent default risks from spreading to the whole market, KRX has been securing extra reserves for
settlement such as accumulated settlement funds, joint compensation funds for loss incurred from default and
others.
18) In the KRX market, the settlement agency is KRX (CCP) regardless of trading partners
[Figure 5-5] Clearing and Settlement System in Major Financial Markets
Settlement of Securities and Derivatives Products Settlement of Capital
KRX OTC -
Derivatives
Entry of Trading
Entry of Trading
Derivatives
Cash Market Cash Market Market
Market Financial
Stock KTS Futures Options KTBs IRS CDS
Institutions
market market Market Market (Banks/Securities
Bond Repo Securities Companies)
REPO lending and
market market borrowing
KFTC KFTC
Calculation
Calculation
KRX (Joint network System
KRX CCP (OTC
(Joint network
System between between banks)
(KRX/Cash/Derivatives CCP) Derivatives bank)
CCP) Transfer to other Transfer to other
banks banks
(Price) (Price/Underwriting BOK

Settlement
Settlement
(Securities)
Bank for physical bonds) financial
KSD
Settlement KRX Networks
(3) Clearing and Settlement On KTS

The settlement date in the KTS is the next day of trading date (T+1) and settlement must be completed by 16:00
on that day. Settlement of securities on KTS is completed for each bond. When the sell-side transfers securities
to KRX accounts, KRX without delay transacts payment to the seller with the provided liquidity from BOK. As
for buyers, KRX pays back received capital from buyers to BOK, receives back government bond securities
provided to BOK as collateral, and delivers them to buyers.
As KTS involves trade between PDs, the number of issues traded is relatively small while settlement amount
per issue is large. For this reason, it is more efficient for securities and payment to be deducted or settled by
issue. In consideration of this, KRX overhauled the clearing and settlement system to enable securities delivery
and payment to be settled by issue beginning Feb. 20 2012. The details of the system overhauls are as follows.
Firstly, the original method of universal deduction for all bond issues was changed to a differential deduction
by issue, the same as settlement for securities. This enables receipt of both securities and payment by issue.
Also, KRX eased the requirements for receipt, so that, once customers complete the payment or securities
delivery, they are allowed to receive the securities or payment concerned. Accordingly, even when all the
securities and payments are not delivered or completed, customers-who meet the requirements-can receive
securities or payments in advance, thus raising efficiency and immediacy of settlement.
Secondly, BOK provides KRX with liquidity for settlement using the government bonds delivered by customers
to KRX as collateral under the “Daily Repo Trade System.” Under the system, KRX can use the liquidity
Par t 05
provided by the BOK and immediately make the payment to customers, thus addressing overdue settlement of
government bonds.
Thirdly, in the past, KRX started to make payments or deliver securities from 15:00, after all customers
completed payment and securities delivery. However, as BOK started to provide liquidity for settlement from
09:00, KRX changed its onset time for opening settlement to 9:00. By doing so, the system operating risk
driven by settlement concentrated in the afternoon and the overdue payment issue were resolved.
To address delay in payment, KRX introduced liquidity supply system for settlement on June 24, 2013. When
sellers fail to settle securities triggering delay in payment by 16:30, KRX fulfills securities settlement for buyers
through liquid KTBs in KRX accounts. To prepare extra liquidity, KRX purchases government bonds of which
settlement account is relatively large. The total fund it holds amounts to 50 billion won, which will be flexibly
adjusted in light of future settlement conditions. Liquidity accumulated within KRX helps government bond
market make early settlements, successfully alleviating risk of payment delay.
06 Mark-to-Market Evaluation
Mark-to-market (MTM) evaluation refers to the valuation of bonds at market price, not at book value.
Before its introduction, bonds in trust accounts were valued at book value, which failed to reflect default risks.
As a result, investors and fund management companies only preferred high-yield funds without considering the
accompanied investment risks.
In order to resolve this problem, the government tried to change the evaluation method to mark-to-market,
which was not feasible then due to lack of liquidity in the secondary market.
The Korean government began to prepare for the introduction of the MTM evaluation method in September
1998 by amending applicable laws and establishing a public disclosure system for bond yields.
In September 1998, the Korea Financial Investment Association (KOFIA), previously the Korean Securities
Dealers Association, began to collect data on bond yields (by type and credit rating) from ten securities
companies to publicly disclose them. To better reflect various elements like liquidity premiums in bond prices,
the Korean government authorized the establishment of three private bond pricing agents, Korean Assent
Pricing, KIS Pricing, and NICE Pricing Services, Inc., in June 2000, (FnPricing was additionally included in
Sept. 2011) and provided policy support. In October 2003, KOFIA stopped disclosing the bond yields, and
private pricing agents took over the role. KOFIA currently monitors bond prices to check on the fairness of
pricing and prevent the possible involvement of back-scratching alliances between the evaluation companies
and their clients.
<Table 5-6> Measures to Expedite Establishment of Bond Pricing Agents
Time Support by Korean government
Required subordinated bonds and speculative-grade bonds included in tax-

Nov. 2000
exempt high-yield funds to be priced by multiple pricing agents
Required speculative-grade bonds included in mutual funds to be evaluated by

Feb. 2001
multiple pricing agents
Sept. 2001 Required assets in investment trusts to be priced by multiple pricing agents
Jan. 2002 Required assets in bank trusts accounts to be priced by multiple pricing agents
Made evaluation by multiple pricing agents obligatory for insurers’ special

Apr. 2002
accounts
Made evaluation by multiple pricing agents obligatory for securities companies’

May 2002
bonds for RP
Oct. 2003 Discontinued disclosure of individual bonds’ yields by KOFIA
With the MTM evaluation system fully in place, bond investors can obtain information on bond prices and
risks, which helps them make more informed decisions. With fair evaluation of various financial products by
professional evaluators, asset management of investment trust companies became more transparent. The MTM
evaluation system is, therefore, viewed as a significant boost to the development of not only the KTB market
but also the entire financial market.
2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
06
part
KTB-related
Markets
1. Overview
2. Repurchase Agreement (Repo)
3. KTB Futures
4. STRIPS
5. KTB ETF (Exchange Traded Fund)
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
06. KTB-related Markets ｜ 89
01 Overview
Par t 06
KTB-related market is a market for financial instruments derived from KTBs. The growth of the KTB market
led to the formation and development of this market, which is in turn driving the qualitative growth of the KTB
market overall.
There are several types of KTB-related market. The Repo market trades KTBs but adds the character of money
market by attaching certain conditions; STRIPS separates the principal and interest of KTBs and trades them as
marketable securities; KTB futures are used to gain profits from price fluctuations in KTBs without actual
trading; and ETF invests in KTB indices to diversify investments portfolios. The participants in these markets
have different investment purposes compared to those in the KTB market.
The KTB-related market will continue to develop and expand, which is anticipated to benefit the KTB spot
market. The Korean government will continue its policy efforts in revitalizing this market.
02 KTB Repurchase Agreement (Repo)
(1) Understanding of Repo Trading

Repo trading entails selling or buying of a bond to reverse the trade on a predetermined future date. Hence, two
deals in a single contract are agreed upon simultaneously.
[Figure 6-1] Repo Trading Process
Bond
Trade
Seller Buyer
date Spot price
Single
contract
Bond
Repurchase Seller Buyer
date
Repurchase price payment
(Sale price and agreed
interest)
As in [figure 6-1], the Repo seller delivers the bond he holds to the Repo buyer on the trade date and receives
the sales payment in return. When the predetermined repurchase date is reached, the seller receives back the
bond from the buyer and pays repurchase price, which includes interest (Repo rate).
A reverse Repo is simply the same repurchase agreement from the buyer’s viewpoint, not the seller’s. The seller
selling bonds and raising funds would describe it as a “Repo”, while the buyer buying securities and investing
funds in the same transaction would describe it as a “reverse Repo.”
(2) Economic Overview of Repo Trading

Repo transactions fall under the category of bond trading in form, but have the nature of secured loans. Looking
at the structure of a Repo, ownership of bonds and cash is exchanged on the days of sale and repurchase,
making it the same as general trading of securities. However, from an economic perspective, it is a loan
transaction collateralized with securities where the party in need of funds (Repo seller) provides securities as
collateral and borrows cash. As such, the original Repo seller accrues interest and other profits resulting from
collateral securities during the Repo period, unlike general trading.
In other words, the party in need of cash and in possession of bonds maintains the right to the economic profits
of the bonds and raises funds at a low interest rate by selling the bonds. On the other hand, the party in
possession of cash can safely manage the fund by buying the bonds in a Repo (reverse Repo) and is given the
opportunity to realize trading profits by freely disposing the purchased bonds while in ownership of them.
(3) Use of KTBs in Korea’s Repo Market

Due to their “risk-free” reputation, KTBs are used as collateral in repo trade for lower borrowing cost compared
to other bonds (lower repo rate).
03 KTB Futures
Par t 06
(1) Overview of KTB Futures Market
A KTB futures contract is an agreement to transfer a specific volume of KTBs of which value changes
according to yield changes in an organized market (KRX) at a specific time in the future at a price determined
when concluding the contract (futures price).
Currently, there are three KTB futures markets by maturity, namely markets for 3-year, 5-year, and 10-year
KTB futures. The KTB futures market has steadily grown along with the spot market, and 3-year KTB futures
are now the world’s 11th most liquid futures contracts, as of the first half of 2015. As the demand for KTB
futures was concentrated on 3-year KTB futures, trading in 10-year KTB futures has been slow. The
government implemented policy measures19) to promote the long-term KTB futures market in Oct. 2010. As a
result, the trade volume of 10-year KTB futures dramatically increased, making it the world’s 14th most liquid
market.
<Table 6-1> Average Daily Trading Vol. of KTB Futures

(Unit：No. of contracts)
Year 3-year KTB futures (Sept. 1999) 10-year KTB futures (Feb. 2008)
2008 64,156 45
2009 79,252 -
2010 111,011 132
2011 137,662 14,128
2012 119,871 52,601
2013 118,591 48,554
2014 87,833 40,696
2015 104,827 47,559
Jun. 2016 109,230 53,717
19) Trading
‌ volume of 10-year KTB futures were included in the PD evaluation, and the final settlement method was changed (physical delivery
→cash settlement) to ease the burden on the market participants. (Oct. 25, 2010)
(2) Goals of KTB Futures

As the issuance volume of KTBs rapidly increased and trading became active after the 1997 Asian financial
crisis, the demand to hedge against the price fluctuation of KTBs increased. Accordingly, to provide investors
means to hedge against such risks, the government introduced the 3-year KTB futures in September 1999.
<Table 6-2> KTB Futures
3-year KTB futures 5-year KTB futures 10-year KTB futures
Listing date Sept. 29, 1999 Aug. 22, 2003 Feb. 25, 2008
KTBs KTBs KTBs

(face value of 100 million won, (face value of 100 million won, (face value of 100 million won,
Underlying assets
3-year maturity, 5% coupon 5-year maturity, 5% coupon 10-year maturity, 5% coupon
rate) rate) rate)
Price indication Face value of 100 million won converted and indicated as 100.00
Tick Size 0.01
10,000 won
Tick Value
(=100 million won×0.01×1/100)
09:00~15:45
Trading hours
(last trading day:09:00~11:30)
Settlement months March, Jun, September, December
Last trading day Third Tuesday of the settlement month
Final settlement method Cash settlement
Price limit Base price±1.5% Base price±1.8% Base price±2.7%
Margin rate20) 0.60% 1.05% 2.25%
The KTB futures market is regarded to have had positive impact on the trading of KTB spots by linking trading
of spots with that of futures. The KTB futures market is contributing to the development of the financial market
by providing information on future rates, and diversifying the investor base as a new investment tool.
20) ‌As of January 2015, the margin rate is adjusted in accordance of interest rate change every three months on a regular basis, and Financing
investment company decides customer margin rate by KTB futures types at the minimum of 0.75%, 1.35%, and 2.55%.
(3) Characteristics of KTB Futures Trading
Par t 06
A. Daily Settlement
The settlement amounts of futures trading can be excessively large if settlement is made only once on the
maturity date. The KRX hence marks the unsettled contracts to previous closing price everyday. Then, it settles
profit and loss resulting from market-to-market to keep settlement amounts small and simplify settlement tasks.
To increase efficiency in daily settlement and guarantee settlement, the KRX requires traders to deposit
margins. Customer margin is calculated for each futures account. Hence, a person who has multiple accounts
must pay margin on each account. Customer margin is defined as the guarantee for settlement and, therefore,
should be paid in cash. It can also be paid with securities and foreign currency within a certain scope.
B. Cash Settlement
Futures are settled either by transferring actual securities (physical delivery)21), the underlying assets of futures
contracts, on the maturity date, or by paying cash for the change in value (cash settlement). Cash settlement is
used for KTB futures as it is burdensome for traders to trade actual securities. Not only that, they do not have to
transfer KTBs and funds of large scale for settlement using this method as only the change in value is settled
between parties.
C. Standardized Virtual Bond as Underlying Asset
It is difficult to standardize trading conditions of bond futures compared to other futures contracts. Trading
conditions such as the time-to-maturity, coupon rates, interest payment methods vary, which leads to
inconvenient and costly settlement processes. This is why a standardized virtual bond is used as underlying
asset. It is intended to standardize the notional amount, time-to-maturity, coupon rate of bonds as underlying
asset for futures contract. It enables trading of KTB futures in large volumes and easy transfer of them to third
parties. For instance, a virtual bond with a coupon rate of 5% and the time-to-maturity of three years is used as
an underlying asset for 3-year KTB futures. A virtual bond with a 5% coupon rate and a 10-year until maturity
is used as an underlying asset for 10-year KTB futures. Current KTB futures can be considered as products
targeting forward-rates of KTBs by maturity on the final trading date.
21) Physical
‌ settlement refers to cash payment method calculating profit and loss, and additional transactions are conducted at the final
settlement price
D. KTB Futures Basket
As there is no real underlying asset for KTB futures in the market, actually-traded KTBs are used to calculate
the theoretical price of the underlying asset. In other words, a futures basket consisting of traceable spot bonds
is needed for rate projections. KRX designates basket bonds as underlying assets for every KTB futures
contract before trading.
Currently, three bond types are designated as basket bonds each for 3-year KTB futures and 10-year KTB
futures. As the average rate of the basket bonds ultimately decides the settlement yield, the futures basket is
called the “underlying asset of KTB futures”22) in general.
22) Under the current KRX’s operational regulation of derivatives, underlying asset is stipulated as standardized virtual bonds.
[Figure 6-2] KTB Spot (issuance and trade) and Futures Market
Par t 06
Primary Secondary
Market Market
< New KTBS issuance > As of

Underwriting of PDs 15:30
(Appraisers)
Spot
[ Issuance and deposit ] [ KRX ] [ Information disclosure by KRX ]
Market
·Auction (BOK) <Information>
(KRX, - ‌Award of successful ·Real-time quote
Trading bidding (MOSF) Offering bid-ask prices in ·real-time price
in OTC) ·KTB registration (BOK) real time by PDs <Clearing> KRX
·Central deposit (KSD) <Settlement> BOK, KSD
Market
price
disclosure
[ Listing on KRX ] [ OTC ] [ Information disclosure by KOFIA ]
<Information>
·Provision of ISIN ·BQS
·Listing of KTBs Offering individual bid ·‌Price after 15 min of
·‌Practical process of delay
or ask prices
designating benchmark <Clearing> -
bond <Settlement>BOK, KSD
KRX KTB Futures Market
[ Designation of Basket bonds ] [ Calculation of underlying asset price ]
- (PD) Reporting
‌ basket bond yield for final
On-the-runs, settlement
off-the-runs, - (KOFIA) Calculating and notifying average yield
and etc - (KRX) ‌Calculating and notifying underlying asset
price
Market-
operation
[ Settlement of KTB Futures ]
Underlying basket - (Weekdays)

‌ Calculating theoretical price and
deposit amount
bonds
- (Final
‌ trading date) Calculating and notifying
final settlement price
04 STRIPS
(1) Overview
Through STRIPS (Separate Trading of Registered Interest and Principal of Securities), investors can separate
interest from principal and trade them as zero coupon bonds. For instance, 20-year KTBs issued on December
29, 2009 have a cash flow that pays interest on June 10 and December 10 every year for 20 years and the
principal on December 10, 2029. They can be stripped into a principal STRIPS and 40 coupon STRIPS (41
zero-coupon bonds in total) that can be traded in the secondary market.
[Figure 6-3] Example of STRIPS
Strips of 20-year KTB issued on Dec.10, 2013 with coupon rate of 4.000%
Principal of 10 billion (Redemption on Dec.10, 2033) Principal of 10 billion (Redemption on Dec.10, 2033)
0.2 billion 0.2 billion 0.2 billion Strips 0.2 billion 0.2 billion 0.2 billion
10th Jun 10th Dec ··· 10th Dec 10th Jun 10th Dec ··· 10th Dec
2014 2014 2033 2014 2014 2033
Opposite to STRIPS, separated principal and coupons can be recombined into the original coupon bond in
which the process is called reconstitution.
Strips can meet the demand for long-term bonds with diverse maturities and can be used in developing long-
end financial instruments. Also, the conversion from coupon bonds to zero-coupon bonds enables deferral of
interest income tax payment.
(2) STRIPS Procedure
Par t 06
To issue stripped bonds, bondholders must place a request. Korea Securities Depository, the institution
responsible for STRIPS, checks whether there are sufficient bonds in the requester’s account and whether they
can be stripped, and restricts transfer or trading of the requested amount until the procedure is completed.
After notifying the result to the requester, KSD subtracts the original coupon bonds for the requested amount of
STRIPS from the requester’s account, and substitutes the same amount with interest and principal strips. BOK,
the agent responsible for KTB listing, files application for the listing to KRX.
(3) STRIPS in Korea

Korea first introduced KTB STRIPS in March 2006 to increase the liquidity of benchmark KTBs, build a yield
curve for development of the long-term bond market, respond to demand for long-term zero-coupon bonds,
internationalize the bond market, and others.
KTB STRIPS applies to mid-and long-term KTBs with 3-year or longer maturities issued since 2006. The
principals and coupons of stripped bonds can be reconstituted. KTBis are excluded from STRIPS as their
principals and coupons change according to consumer price index.
KTB holders can request STRIPS on BOK-Wire via the Korea Securities Depository. The same procedure
applies for reconstitution. Amounts that can be stripped are multiples of the KTB face value of 16 million won.
This is to maintain the face value of coupon strips at the minimum of 10,000 won.
The prices of stripped bonds are calculated by bond pricing agents approved by the Financial Services
Commission (FSC). They are disclosed to investors through the KRX web site, KTS, and financial information
services such as CHECK and Infomax.
The first STRIPS was offered for 20-year KTBs in April 2007. While 20-year KTBs make up most of STRIPS,
30-year KTBs are also being actively requested for STRIPS.
[Figure 6-4] STRIPS Volume
(KRW trillion)
60.0 56.96 10.0%

53.00
Outstanding Principal Strip (left) 9.0%
50.0
44.46 8.0%
Total Strip Outstanding (Principal + Interest, left)
7.0%
40.0 35.27
Strip Proportion (Principal, right)
6.0%
26.46
30.0 5.0%
4.0%
18.32
20.0
3.0%
9.50
2.0%
10.0
1.0%
0.16 0.15 0.25
0.0 0.0%
’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16.6
* Source: KRX
05 KTB ETF (Exchange Traded Fund)
(1) Overview
KTB ETF is a fund that tracks KTB indexes of yield and price changes in the government bond market. It is an
indirect investment instrument in which investors can freely trade in the KRX like stocks. Its main objective is
to track down KTB prices and yield moves.
The development and announcement to the public of the real-time KTB index in 2009, of which represents the
domestic bond market, laid the foundations for the development of KTB ETF. The KRX and KIX Pricing Inc.
put joint efforts to develop the KTB index consisting of three types of bonds, such as 3-year KTB benchmarks,
the previous benchmark bonds, and 5-year benchmarks, while KOFIA, Maeil Business Newspaper, and
FnGuide jointly developed the MKF TBI (Treasury Bond Index). By doing so, ETF linked to the yield move of
3-year KTB index became available, and was listed on the KRX market for the first time on July 29 2009.
[Figure 6-5] ETF Market Structure
Par t 06
Primary Market (Settlement/Repurchase) Secondary Market (Buying/Selling)
Institutional Investors All investors
Payment of asset
(settlement) Receipt of ETF Buying/ Order
Payment of ETF / Receipt of Basket Selling order settlement
(repurchase) LP
Quotation
AP LP KRX
Settlement/ Issue / cancel

repurchase claims ETF
Asset managers
Market where ETF issuance

Market where owner of ETF changes
increases and decreases
(2) Merits of KTB ETF

KTB ETF is easy to understand and invest compared to other KTB instruments. Investors can simply invest in
ETF using their existing accounts for stock. Generally, retail investors have some difficulties investing in the
institutional investment market since the general trade unit is more than 1 billion won. The small investment
volumes of retail investors put them in a disadvantage. On the other hand, the minimum trade unit for KTB
ETF is between 50,000 - 100,000 won, and the trade price is almost similar to that in the institutional
investment market. Hence, KTB ETF is considered as an attractive product to retail investors.
Investing in KTB ETF does not require analysis or information on each bond types (investors simply follow the
market trends). It also automatically enables investment diversification since KTB ETF invests in major market
indexes. It is the most transparent fund in that ETF publicly notices the PDF (Portfolio Deposit File) to ensure
investors to monitor their fund portfolio on a daily basis. As the ETF price of bonds fully reflects moves of the
target index, and the contents of the bond basket or net asset values are publiclg announced on a daily basis,
KTB ETF boasts high product transparency.
<Table 6-3> Comparison of Major Financial Products
ETF Stocks, KTBs Index Fund Active Fund Futures

Exceeding Profit Exceeding Profit Hedge and
Management Objective Specific index Specific index
of Index of Index marginal profts
Collective Collective Collective
Shares, Debt Derivatives
Legal Characteristics Investment Investment Investment
securities Products
securities securities securities
Transparency High High Normal Normal High
Liquidity High High Low Low High
T+2
Settlement Date T+2 T+3 T+3 T+1
(KTB T, T+1)
Loans of Securities Possible Possible Impossible Impossible Impossible
Functions of Leverage
Possible Possible Impossible Impossible Possible
(Purchase of Deposit)
Entrustment fees
Trading Cost Entrustment fees Management cost Management cost Entrustment fees
Management cost
Tax for Securities Imposed when

Exempted Not applied Not applied Exempted
Trading purchasing
(3) Risks
KTB ETF is basically a fund to invest in fixed income securities and be traded in the market. Although it is
important to consider risks that may be accompanied, few risks exist other than the risks regarding price and
yield changes of KTBs. For example, the bond-type ETF, an indirect investment product, is an index fund
linked to the bond index. One can incur losses due to the fluctuation of the bond index. Increased demand does
not necessarily ensure an increase in the ETF price, and the decline in trading volume decline also does not
always mean less movements in the ETF price.
As KTB ETF is a product designed to link yield to KTB index, standard prices of ETF and KTB index are
supposed to match. However, this may not always be the case. Such disconformity is a tracking error, which
may possibly be related to the capacity of asset management companies; investors should carefully consider
this before investing.
KTB ETF is not a product with maturities, and basket constituents of bond index changes on a regular basis. As
such, KTB ETF does not ensure fixed yields like KTBs with fixed maturity terms.
2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
07
part
Primary Dealer
System
1. Overview
2. Background
3. Changes in the PD System
4. PD Designation
5. Obligations of PDs
6. Rights and Incentives for PDs
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
07. Primary Dealer System ｜ 103
01 Overview
Par t 07
Primary Dealers (PDs) have the right to exclusively participate in the primary KTB market. At the same time,
they have obligations as market-makers to offer ask/bid prices and the like in the secondary market.
The PD system, widely adopted by OECD countries, is designed not only to facilitate the successful absorption
of treasuries by the market but also strengthen communication between market participants and the authorities.
In Korea, the government shifted from the underwriting syndicate system to the PD system in 1999. As of June
2016, 19 PDs are active. Korea’s government bond market grew both qualitatively and quantitatively since then,
and the PD system is considered to have played a significant role.
Among institutions authorized to engage in investment trading of KTBs, those who exceed trading performance
above a certain level and are financially sound are designated as PDs by the Korean finance minister.
02 Background
The most ideal state of a bond market would be when the public debt market plays a leading role in the entire
bond market. However, this was not the case before the 1997 Asian financial crisis as the KTB market was little
developed in terms of size and infrastructure.
KTBs (previously Public Debt Management Fund bonds) accounted for only 2.8% of the entire bond market in
terms of outstanding volume in 1996, which was far lower than that of other advanced countries like the U. S.
(28.8%). The outstanding government debt to its GDP was also only 1.3%, much lower than 44.1% of the U. S.,
and 48.1% of Japan. Furthermore, KTBs were not issued according to market principles before the financial
crisis as they were allocated to the underwriting syndicate at yields set by the government.
The role of government funds began to be stressed after the financial crisis, leading to the rapid increase in
government bond issuance and the need to improve the existing underwriting syndicate system. To ensure
efficient absorption of the increasing volume of KTBs and advance the financial market structure through
revitalization of the secondary KTB market, the PD system was introduced along with the opening of the KTS
in August 1999. The basic objective was to ensure the smooth issuance of KTBs by designating financial
institutions with outstanding KTB underwriting and trading performances as PDs among those that conduct
transactions in government bonds on their own accounts, and promote the secondary market by inducing their
market-making roles.
03 Changes in the PD system
When first introduced in 1999, 12 banks, 11 securities companies, and one merchant bank were designated as
PDs of KTBs. Preliminary primary dealers (PPDs) were also introduced so that those wishing to become PDs
were first designated as PPDs and were determined their promotion to PDs after the evaluation of their market-
making performance and capacity for one year.
The Korean government afterwards strengthened the obligations of PDs to bolster their market-making
function. For instance, it continuously narrowed the bid-ask spread that PDs must offer in the KTS. With such
efforts, fair prices for KTBs were formed in the market and the likelihood of successful trade was heightened. It
also steadily raised the mandatory trading and holding volumes of KTBs for PDs.
Meanwhile, incentives offered to PDs for their market-making roles were continuously strengthened. In March
2000, a financial support system for PDs was introduced so that temporary government surplus funds were used
for low-interest loans to outperforming PDs, taking KTBs as collateral. Since November 2005, the idle cash of
the Public Capital Management Fund, whose purpose is to further encourage efficient issuance and redemption
of KTBs, has been used as a resource of the financial support system for PDs. The financial support was halted
in 2007 and resumed amid the global financial crisis in 2009. Since September 2006, PDs were also given non-
competitive subscription options that can be exercised to underwrite KTBs with winning rates determined in
proportion to volumes underwritten in a competitive bidding. The Korean government grants different
incentives depending on the PDs’ market-making performance to drive competition among PDs, thus aiming to
reduce financing cost and promote the advancement of the KTB market.
In February 2011, the Korean government gave a major overhaul to the PD system. This was due to the fact that
the existing PD system was not much different from the underwriting syndicate system while the KTB market
had developed substantially that the market demand for bonds was no longer an issue, but liquidity was.
Beginning 2010, the average bid-to-cover ratio in competitive biddings of KTBs surpassed 300%, easing
concerns of failure in debt issuance. The trading volume of KTBs is also hitting a record high year by year.
The government reintroduced PPDs to develop the PD system into a more market-oriented one in February
2011. The system was changed in ways that allow the promotion of PPDs to PDs and demotion of PDs to PPDs
based on their performance. Meanwhile, the direct financial support provided to the PDs is being scaled down
taking into consideration the market conditions.
Par t 07
The promotion and demotion of PDs / PPDs are carried out in the second quarter of every year based on their
performance in the previous year. In the second quarter of 2012, one financial institution has been demoted to
PPD, and one PPD has been promoted to PD. In the second quarter of 2013, one PPD was promoted to PD. In
2014, two institutions were revoked of their PD designation due to poor performance, and one PPD was
promoted to PD. In 2015, one PD was demoted to PPD, leaving a total of 19 financial institutions currently
active as PDs. In June 2016, Deutsche Bank (Seoul Branch) was newly designated as PPD.
<Table 7-1> List of PDs and PPDs (as of July 1, 2016)
Classification Institution name
Industrial Bank of Korea, National Agricultural Cooperative Federation, Korea

Banks Development Bank, Hana Bank, Standard Chartered Bank Korea Limited, Kookmin
(9) Bank, Credit Agricole Bank (Seoul branch), ING Bank (Seoul branch), JPMorgan
PD Chase Bank.(Seoul branch)
(19)
ecurities Kyobo Securities, Shinhan Investment Cor., Daishin Securities, Mirae Asset Daewoo,
companies Dongbu Securities, Mirae Asset Securities, Samsung Securities, NH Investment &
(10) Securities, Korea Investment & Securities, Hyundai Securities
BNP PARIBAS(Seoul branch), Yuanta Securities, Meritz Securities, Deutsche Bank

PPD(4)
(Seoul branch)
04 PD Designation
PDs not only underwrite KTBs; they also have implications as “policy participants,” meaning they have to
continuously communicate with the authorities. The government hence requires institutions—wishing to
become PDs or PPDs—to meet strict criteria such as rich experiences in KTBs, sufficient trading volume,
strong financial standing, and so forth.
For PD or PPD designation, the approval for KTB investment trading business (underwriting included) is
required pursuant to capital market and financial investment business laws. Also, requirements and standards on
financial soundness, staffing, and performance should be met as below.
<Table 7-2> Standard for Financial Soundness
Criteria Requirement
▶‌‌BIS capital adequacy ratio at the end of the quarter immediately
No less than 10 percent
before the quarter which PD designation date belongs (PPD: the
(16 percent for foreign bank branches)
date of application)
Banks No less than
▶‌‌Total equity in the financial statement at the end of the quarter 4 trillion won
immediately before the quarter which PD designation date belongs (500 billion won for foreign bank
branches)
▶‌‌Net operating capital ratio at the end of the quarter immediately before
No less than 200 percent
Securities the quarter which PD designation date belongs
Companies ▶‌‌Total equity in the financial statement at the end of the quarter
No less than 400 billion won
immediately before the quarter which PD designation date belongs
<Table 7-3> Criteria on Staffing and Expertise
Assessment
item
Dealing ▶‌‌No. of dealers wholly responsible for dealings of KTBs and have
No less than 5 persons
personnel experiences as bond dealers or brokers for at least three years
Research ▶‌‌No. of economic and financial specialists with experiences of at

staff least three years in research and analysis
Back office ▶‌‌No. of specialists for KTBs and fund settlement who have
staff experiences in securities and fund settlement for at least one year
No. of years in ▶‌‌Period from the day of authorization as a government bond dealer
No less than 2 years
KTB dealings to the day of application for PPD designation
<Table 7-4> Standards for Performance
Par t 07
Assessment
items
Trading volume ▶‌‌Trading volume of benchmark KTBs on KTS in comparison with the
No less than
of benchmark dealers’ total trading volume of benchmark KTBs for two quarters
35% per quarter
bonds in KTS immediately before the quarter of the PD designation
Trading volume ▶‌‌The dealers’ trading volume of KTBs in comparison with banks or
No less than
in secondary securities companies’ average KTB trading volume for two quarters
35% per quarter
market immediately before the quarter of the PD designation
▶‌‌Average balance of KTBs held for own-account transactions (dealing) No less than
KTB holdings
during the last six months 300 billion won
Financial institutions must first be designated as PPDs before becoming PDs. The Ministry of Strategy and
Finance determines the promotion of PPDs to PDs based on the evaluation of their market making performance.
The Ministry receives applications every May and November, and the decisions on designation are made by the
end of June and December. Once designated as PPDs, institutions can participate in biddings for KTBs starting
January the following year, and must fulfill PPD obligations.
PPDs can be promoted to PDs if their annual performances23) in meeting their obligations in each of the areas—
quote suggestion, KTB trading, 10-year KTB futures trading, and the like—are better than that of the top 15
PDs. However, they are not automatically guaranteed PD designation for satisfying these conditions. The final
decision will be at the discretion of the Finance Minister, who will factor in the total number of PDs and their
level of contribution to the stability and development of the KTB market.
PDs may be demoted to PPDs if their total score for the annual performance in meeting their obligations is less
than 310 points out of a possible 400 points; if their quarterly score is below 40 points out of a possible 100
points; or below 60 points for two consecutive quarters. PDs falling short of the required score are not
automatically demoted. Like PD designation, it will be up to the Finance Minister who will take into
consideration the KTB market conditions, the number of PDs, and so forth.
PDs can be revoked of their PD status if their quarterly average KTB holdings fall short of 300 billion won; if
they submit irrationally high or low prices in the KTB auctions; or if they submit false reports.
23) Aside
‌ from the annual promotion/demotion of PPDs/PDs, newly designated PPDs can be subject to early promotion based on their four
quarterly performance results after their PPD designation beginning 2015. PDs demoted to PPD can also be subject to early re-promotion to
PD based on their two quarterly performance results after the demotion.
05 Obligations of PDs
PDs must fulfill the obligations set forth by the Minister of Strategy and Finance to maintain their PD status.
The obligations are specified in the Ministry of Strategy and Finance notice called “Regulations on KTB
issuance and PD operation.” When these obligations are fully met, PDs receive a full score in their quarterly PD
assessment. Scores are deducted when their obligations are not met. As PPDs are limited in terms of how much
they can underwrite and receive no incentives such as financial assistance and non-competitive subscription
options, they are only subject to the obligations of offering ask prices, trading, and market-making of 10-year
KTB futures.
Details of PD obligations are as follows:
❶ ‌KTB underwriting : PDs are to underwrite at least 10% of the monthly issuance volume of each
benchmark KTB.
‌ ffering of bid/ask prices : PDs are to submit at least ten bid/ask prices (five for 30-year KTB,
❷O
three for KTBi) for each benchmark KTBs in the KTS during the trading hours.
❸ ‌Trading volume : PDs are to trade no less than 200% of the average trading volume of KTBs (in
case of 10-year KTB futures, the average trading volume of the entire PDs) of either banks or
securities companies.
❹ ‌Holdings : PDs are required to maintain the average balance of 1 trillion won in KTBs on their proprietary
accounts each quarter.
❺ Participation in buy-backs : PDs are to take 5% of the total volume in buy-backs.

Scoring details for PD’s performance as of the June 2016 are as follows:
Par t 07
<Table 7-5> Scoring Details for Quarterly PD Assessment for 2016
Obligatory
Scoring Scoring method
assessment items
29 points
- 3-year KTBs: 3 points
KTB underwriting - 20-year KTBs: 6 points
- KTBi:2 points
* ‌If there is no issuance of KTBi: underwriting score without KTBi ×
29/27
▶ Obligation fulfilled ⇒
KTB repurchase and conversion: 4 points perfect score
KTB repurchase
& conversion * ‌If there is no KTB repurchase and conversion: underwriting score × - Quarterly
‌ perfect
4/29
score：100 points
- Annual
‌ perfect score：
36 points
400 points
- Base : Number of business days in a quarter
- ‌Performance score: Sum of Min[1, actual hours of
Offering of bid/ask ▶ Obligation not fulfilled ⇒
prices price offering/obligatory hours for all trading days in a
quarter] during business days Full score ×
* ‌If the ratio of actual offering to obligatory offering is less than 80%, zero
(performance score/Base)
point is to be assigned
*U
‌ n d e r w r i t i n g , p u r c h a s e a n d
conversion is evaluated by the
average score by month
Trading in the
secondary market
12 points
STRIPS 2 points ▶ Trading

‌ volume on
consignment is excluded
Trading volume for 10-

year KTB futures
2 points
Holdings 11 points
Policy cooperation 4 points

<Table 7-6> Scoring Details for Monthly PD Assessment for 2016
Obligatory
Scoring Scoring method
assessment items
29 points
- 10-year KTBs: 9 points ▶ Obligation fulfilled ⇒
KTB underwriting
- 20-year KTBs: 6 points perfect score
- 30-year KTBs: 6 points - Quarterly
‌ perfect
- KTBi:2 points score：100 points
* ‌If there is no issuance of KTBi: underwriting score without KTBi ×
- Annual
‌ perfect score：
29/27 400 points
KTB repurchase and conversion: 4 points

KTB repurchase
& conversion * ‌If there is no KTB repurchase and conversion: underwriting score × ▶ Obligation not fulfilled ⇒
4/29
Full score ×
(performance score/Base)
36 points
- Base : Number of business days in a month * ‌U n d e r w r i t i n g , p u r c h a s e a n d
conversion is evaluated by the
average score by month
- ‌Performance score: Sum of Min [1, actual hours of
Offering of bid/ask
prices price offering/obligatory hours for all trading days in a
quarter] during business days
▶ Trading
‌ volume on
* ‌If there is no KTB repurchase and conversion: underwriting score × consignment is excluded
4/29
Trading in the 12 points

secondary market - limited to trading performance on KTS
2 points
STRIPS
- limited to trading performance on KTS
06 Rights and Incentives for PDs
As PDs carry out their market-making obligations in the domestic bond market, the government grants them
rights and incentives as rewards.
Firstly, PDs can exclusively participate in the competitive biddings for KTBs and underwrite up to 30% of the
scheduled issue volume. PPDs can participate and underwrite up to 15%. The purpose of granting rights of
exclusive bidding participation to only PDs and PPDs is to strengthen the link between their obligations and
Par t 07
incentives, thereby ensuring the stable issuance of KTBs and reducing the borrowing cost.
PDs are also granted rights to non-competitive subscriptions. During the three business days following a
competitive auction, PDs can additionally purchase KTBs at the same yield as the highest auctioned yield at the
competitive auction. The amount of KTBs they can purchase through the non-competitive process depends on
the results of their semi-annual performance. In 2015, non-competitive subscriptions based on their monthly
performance results were added by adjusting the percentage of which PDs can additionally purchase through
the former. PDs that placed 1st to 5th in the bi-annual performance evaluation can additionally underwrite up to
20% of their total underwriting volume at the competitive auction. Those that ranked 6th to 10th can underwrite
up to 15%, and those in 11th to 15th place can purchase up to 10%. The remaining PDs can underwrite up to
5%. Top five PDs in the monthly evaluation were granted an additional 10%. To promote purchase of KTBs,
changes were brought about so that the top five PDs in the monthly performance evaluation were granted 15%,
and the next five PDs were given 5%.
In addition to the aforementioned rights, the financial support system is being operated to provide low-interest
loans to PDs, using the government’s temporary surplus funds and taking their KTBs as collateral.
In November 2013, Financial Services Commission introduced a slew of measures for money market reforms
aimed at reducing reliance of financial institutions on the overnight call money market. Under the revision, only
banks are allowed to borrow from the market along with PD securities companies (including those targeted for
open market operation by BOK) as an exception, considering their KTB underwriting obligations and market-
making costs, and the like.
2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
08
part
Foreign Investment
in KTB
1. Overview
2. Development in Foreign Investments
3. Foreign Investment Management System (FIMS)
4. Foreign Investment Process
5. Taxation on Bonds for Foreign Investments
6. Custody Service by BOK
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
08. Foreign Investment in KTBs ｜ 115
01 Overview
Par t 08
While domestic investors dominated the KTB market before 2007, foreign investors have been gradually
gaining importance year by year after this period. The diversification of the investor base - attracting investors
with different time horizons, risk preferences, and trading objectives - bring about benefits such as dispersion of
systematic risks, easing of market volatility, and the like.
As of present, foreign investors can freely invest and own KTBs as there are no procedural restrictions for them
in investing in Korean government securities, The continuous increase in foreign investor participation is
considered to have come from Korea’s quick and robust economic recovery since the 2008 global financial
crisis. In particular, following 2010, the abundance of global liquidity, and Korea’s sound fiscal position and
good national credit rating, have made KTBs attractive. The demand in and abroad continues remain strong.
<Table 8-1> Foreign Investors’ Bond Holdings

(Unit：KRW trillion, %)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016.6
Total 37.0 37.5 57.5 74.2 83.0 91.0 94.7 100.4 101.4 96.2
(Proportion*) 4.5 4.3 5.6 6.6 6.9 7.0 6.8 6.9 6.5 6.0
KTBs 25.3 20.0 28.7 47.7 60.9 56.9 58.3 65.9 67.7 70.4
(Proportion) 11.1 8.4 9.8 15.4 17.9 15.7 14.5 15.0 13.8 13.6
MSBs 10.6 16.2 28.1 25.4 20.0 31.6 34.4 33.2 32.7 24.9
(Proportion) 7.1 12.7 18.8 15.5 11.9 19.4 20.8 18.7 17.9 13.7
* Proportion of foreign investor’s bond holdings against total listed bonds

02 Development in Foreign Investments
The KTB market opened gradually in the process of Korea’s accession to the OECD and the 1997 Asian
financial crisis. It was first open to foreign investors in 1994 when they were allowed to invest in convertible
bonds of small and medium companies. At the time, they were limited to investing in only few types of
securities such as corporate bonds.
It was in December 1997 when the Korean government allowed foreign investors to invest in government
securities to expand the demand base for the domestic bond market. Despite the full-fledged opening of Korea’s
bond market to foreign investors, foreign investments in KTBs remained low until the mid-2000s due to the
absence of an active secondary market. Up until 2006, their holdings in KTBs took up less than 2%.
In and after 2007, foreign investments rapidly increased due to heightened marketability of KTBs following the
development of the bond market infrastructure and greater opportunities for arbitrage profit. As of June 2016,
foreign holdings reached 70.4 trillion won (proportion: 13.6%), which was a huge increase compared to late
2006 (4.2 trillion won, proportion: 2%). The number of investor countries also increased from 27 in 2007 to 51
in 2015. While foreign investors were mainly focused on investing in short-term bonds (ie. 3-year), they have
gradually been expanding their investments in mid-and long-term bonds.
In particular, investments by banks and funds—mainly seeking arbitrage profits—have recently diminished
while that of global funds and major foreign central banks, which tend to be long-term conservative investors,
have increased. As of June 2016, the KTB holdings of major foreign central banks reached roughly 49.1 trillion
won, equivalent to 51.0% of total foreign investments. Such changes are indicative of the positive
transformation of the nature of foreign investments from hot money to real money amid Korea’s strong fiscal
position and highly praised long-term growth potential.
03 Foreign Investment Management System (FIMS)
Par t 08
While the rapid increase in foreign investments reflects the improvement of foreign investors’ confidence in
Korea’s bond market, it also implies the possibility of greater volatility in the capital or foreign exchange
market. Recently, concerns of such volatility, which may be triggered by rapid capital movements in and out of
Korea amid monetary easing of major developed countries, have risen. In response, the Korean government
strengthened its monitoring of foreign investments in domestic bonds.
The Foreign Investment Management System (FIMS), reports to Financial Supervisory Service (FSS)
information on the trading and holdings of stocks and bonds by foreign investors in real-time. FSS then
analyzes the information to preemptively respond to capital inflows and outflows in times of changes in
domestic and overseas financial markets.
The Korean government has been working on attracting long-term conservative foreign investors like central
banks and establishing cooperative relationships with them to mitigate volatility driven by foreign investment.
Such efforts are anticipated to prevent rapid capital movements and add stability to the market.
<Table 8-2> Overview of FIMS
Task Description
Investor management ·Investor registration, account and information management
Investment ceiling ·Management of orders and transactions (listed securities, KOSDAQ, Bonds)
management ·Management of investment ceiling for securities
Investment fund
·Daily management of investment funds
management
Investment statistics
·Management of investment status and statistics
management
Futures/options ·Matching orders and management of balance

04 Foreign Investment Process
(1) Bond Investment Process

In order to invest in Korean bonds, foreign investors must appoint a standing proxy, register as an investor,
open a trading account, place trading order, order settlement and deposit funds, and complete settlement.
[Figure 8-1] Investment Process for Foreigners
Custodian
② Register
‌ ①‌‌Make standing proxy
investment
(Standing proxy) contract
FSS Opening foreign Foreign investor
currency account &
② Issue
‌ investment non-resident, Korean ④ Place trading order
registration certificate won account
⑤‌‌Order
③ Open securities trading account ⑤ Process
‌ ⑤ Fund transfer settlement
④ Place trading order settlement
Local custodian
Securities company
(Securities
company/bank)
④ Trading ⑥ Settlement
OTC market
A. Appointment of standing proxy and local custodian
Foreign investors must appoint a standing proxy that will handle necessary procedures for securities trading in
Korea, and a custodial institution that will keep acquired securities in custody. The custodial institution must be
either KSD, a foreign exchange bank under the Foreign Exchange Transaction Act, an investment business
entity, an investment broker, a collective investment business entity, or an internationally recognized foreign
custodian. The qualifications for a standing proxy is the same as that of a custodian.
B. Investment registration and account opening (Standing proxy)
With the letter of attorney from a foreign investor, the standing proxy must be issued the investment registration
certificate. Foreign investors must open a foreign currency account and a non-resident Korean won account for
securities investment at a domestic custodian institution, which will be used for foreign currency deposits and
conversion to Korean won.
C. Trading order and report on result
Par t 08
Foreign investors place order on their own or via a standing proxy, and request the standing proxy to make
payments.
D. Settlement
When foreign investors make deposits in foreign currency to domestic custodians, the custodians convert them
to domestic currency and process settlement with securities companies. For each trade deal in the OTC market,
DVP (Delivery versus Payment) under the Gross Settlement System is used. Funds are transferred through
BOK-Wire or bank accounts, and bonds are settled by book-entry clearing method via SAFE system of KSD.
(2) Domestic Securities Trading and Settlement by Foreign Investors

In order to trade securities, foreign investors must open a trading account at a securities company. For
payments, they can open a foreign currency account at a foreign exchange bank pursuant to the Foreign
Exchange Transactions Regulations, or use the investment brokers’ account.
A. When foreign investors open an account in their name
Foreign investors can open a foreign currency account and a non-resident Korean won account for security
investment in their name to deposit and dispose funds. Such accounts should be opened for each type of
investment security, and funds in foreign currency accounts are restricted to use for specific purposes such
acquiring domestic securities and wiring money overseas.
In order for foreigners to invest in Korean securities, they need to transfer money in foreign currency to their
foreign currency account (opened in their own name) exclusively for securities investment. They must then
convert the money into Korean won and transfer to their non-resident Korean won account exclusively opened
for investment. The converted proceeds need to be transferred again to their trading account held at the
investment broker institution for securities trading.
[Figure 8-2] When Foreigners Open an Account in Their Own Name
Foreign exchange bank Investment brokers
Foreign Foreign
Foreign account
Investors funds for investment
(in the name of foreigners)
Securities
Currency Market
Securities
exchange trading
Trading accounts
Domestic Foreign
non- resident funds
account for investment
B. When foreigners use the account of an investment broker
Investment brokers can open a foreign currency account at a foreign exchange bank in their name for foreign investors’
purchase and selling of Korean won securities or approved securities lending and borrowing.
For securities trading using the account of the investment broker, foreigners need to transfer money in foreign currency
to foreign currency account (in broker’s name) exclusively for securities investment. Brokers then exchange the funds
into Korean won and transfer to the foreign investor’s trading account held at the broker institution.
[Figure 8-3] When Foreigners Invest through Broker’s Account
Foreign exchange bank Investment brokers
Foreign account
Foreign Foreign
for investment Foreign Trading accounts Securities Securities
investors funds (in the name of investment
funds (in the name of foreigners) trading Market
brokers)
05 Taxation on Bonds for Foreign Investments
Par t 08
The domestic tax laws classify foreigners as either “non-residents” under the Income Tax Act or “foreign
corporations” under the Corporate Tax Act. “Residents” are defined, under the Income Tax Act, as individuals
who have resided in Korea for more than one year. “Foreign corporations” are defined, under the Corporate Tax
Act, as corporations that have the headquarters or main office outside of Korea.
For residents, only interest income on bonds is taxed (capital gains are exempt from taxation). For foreign
corporations and non-residents, both interest income on bonds and capital gains are taxed. However, if the
country of the non-resident concluded a tax treaty with Korea, capital gains on bonds are not taxed in most
cases.
(1) Taxation on Interest Income

Interest income for non-residents are subject to consolidated taxation after the payment of withholding tax
(14%) like residents, while interest income for non-residents without a domestic business location are subject to
consolidated taxation.
Interest income on bonds for foreign corporations, which is generated in Korea (domestic source income)24) and
is not practically related to a domestic place of business or does not belong to such domestic place of business,
is generally subject to 20% withholding tax at the time of payment. However, income generated from bonds
issued by the government, local governments, and domestic corporations is subject to 14% withholding tax.
(2) Taxation on Capital Gains on Bonds

Non-residents with a domestic place of business are taxed for capital gains on bonds regardless of the buyer of
the bonds. Non-residents without a domestic place of business are subject to taxation only when the bonds are
sold to domestic corporations. Capital gains are exempt25) from income tax and corporate tax if they are
generated from overseas sale of foreign currency denominated bonds issued overseas by the government, local
governments, or domestic corporations.
As for capital gains on bonds, a tax rate of 10% applies to the transfer price. If the acquisition price and transfer
24) The
‌ Korean taxation system defines interest paid by a domestic place of business run by residents, domestic corporations, foreign
corporations, and non-residents as domestic source interest income. In other words, the tax law of the country where payment of
interest is made applies in principle.
25) Clause 3, Article 21 on Restriction of Special Taxation Act/ Clause 4, Ordinance 18 of Restriction of Special Taxation Act
expenses can be confirmed, the tax rate, whichever renders smaller tax amount, is be applied (either 20% tax on
capital gains or 10% on transfer price). Nevertheless, if the recipient of income is a resident of a country with a
tax treaty, the income is taxed in the country of non-residents and there would be no tax collection in Korea
even if the income was generated in Korea.
In 2009, foreigners were temporarily exempted from withholding taxes on interest and capital income generated
from investment in government bonds, in order to encourage foreign investment in KTBs. The special
exemption was repealed in 2010 to mitigate market volatility triggered by the excessive inflow of foreign funds.
To prevent tax evasion using the status of foreign investors, withholding tax equal to the domestic tax rate is
imposed for the countries suspected of tax evasion.
06 Custody Service by BOK
Since the global financial crisis in 2008, internal and external factors such as concerns over economic and fiscal
conditions in major advanced countries and relatively sound liquidity in domestic bond market prompted
central banks to greatly increase their investment in KTBs.
When investing in KTBs, major foreign central banks use custody service (safekeeping, receipt of principals,
settlement, deduction of withholding tax, management of trade details, currency exchange, management of idle
funds, overdraft and etc) through foreign banks26) mainly located in Seoul.
In judgement that the investments in Korean bonds by foreign central banks are part of the management of the
respective countries’ foreign reserves, and that their relatively stable inflows and outflows contribute to the
stabilization of Korea’s foreign exchange and capital markets, BOK has also been providing Custody Service.
When foreign central banks, international financial institutions, or foreign governments invest in KTBs, MSBs,
or T-bills, BOK enters into cooperative partnership with them and provides various services27) like safe deposit
of securities certificates, receipt of principal, settlement, deduction of withholding tax, management of trading
details, and etc.
26) Customer’s
‌ asset in Korean trust banks is highly protected since it is managed separately from its equity capital. Since the global financial
crisis, however, concerns over safety in investment asset have been rising.
27) Foreign exchange, spare fund management, overdraft etc are to be excluded.
The BOK custody service is expected to help enlarge investment by foreign central banks in KTBs and reduce
related risks. Not only will information on their foreign reserve management be protected from commercial
Par t 08
banks, but the financial market will be more stable through better monitoring of capital movements.
<Table 8-3> Overview of Custody Service
Target institution Target securities Major services
Safe deposit of securities certificates,

Foreign central banks, KTBs,
receipt of principal,
International financial institutions, Treasury bills,
Settlement, Deduction of withholding tax,
Foreign governments MSBs
Management of trading details, etc
* Source : BOK
Other major countries (U.S., U.K., Japan, and others) offer Custody Service to foreign central banks,
international financial organization and the like in favor of enhancing international cooperation and supporting
investment in their government bonds. BOK also uses the custody service provided by these foreign central
banks for its foreign reserve management.
2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
09
part
Investment Guide
1. Retail Investors and KTB Auctions
2. KTB Official Webpage (http://ktb.mosf.go.kr)
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
09. Investment Guide ｜ 127
01 Retail Investors and KTB Auctions
Par t 09
While PDs have the exclusive right to participate in auctions, retail investors and corporate bodies wishing to
participate can do so through PDs. However, they are not allowed to submit bid rates, and their purchase amounts
must be 100,000 won minimum and 1 billion won maximum.
Retail investors must first open a brokerage account at a securities company designated as PD (or an existing
brokerage account can be used). They must then submit the application for bid participation and make deposits
for subscription.
The delivery and settlement of securities are completed on the next business day after the auction. As all KTBs
are registered, issued, and deposited to KSD (Korea Securities Depository), bondholders can trade and exercise
their rights without having issued physical securities.
Once KTBs are issued through auction, they can be traded on the secondary market. In other words, investors
can purchase or sell bonds in the secondary market without having to participate in auctions. They can directly
buy or sell KTBs through the bond market set up by the KRX or over the counters at a securities companiy. They
can easily trade KTBs, like equity, on the security company’s HTS system or phone.
[Figure 9-1] Procedure of Non-PDs’ Participation in KTB Auctions
e.g) 10-year KTB auction, bid date: March 21, 2016 (Mon)
Public notice
- ‌Public notice of the auction on the BOK webpage (3 days in advance).
(3 days before auction)
(or inquiries can be made to the bond division of PD institutions)
Mar 16, 2016 (Wed)
- ‌Open an account at a PD institution before the auction; existing account

Brokage account setup can be also used.
- Required documents: registered seal (or signature) and ID card
- ‌Submit application form including the desired purchasing amount to PD;

Application for bid participation pay 100% deposit.
(Application form) (between public notice day - day before the auction)
- Bidding amount: 100,000 won - 1 billion won
- ‌PDs participate in an electronic auction through BOK-WIRE (10:40-11:00)

Auction
- ‌PDs submit the bids for non-PDs by 10:00 on the same day (for auction of
Mar 21, 2016 (Mon)
pre-issued KTBs, by 9:00)
- ‌KTBs are underwritten at the highest yield decided at the competitive

KTB allocation auction.
(The yield is converted to per-unit cost, and purchase amount is decided.)
KTB delivery - ‌KTBs are delivered to each customer’s account on the next day after the
Mar 22, 2016 (Tues) auction.
- ‌Hold to maturity: interest earnings every 6 months and principal repayment

at maturity.
Hold or Trade
- ‌In the case of falls in rates, bonds can be sold before maturity in the
secondary market for profit.
09. Investment Guide ｜ 129
02 KTB Official Web Page (http://ktb.mosf.go.kr)
Par t 09
The Government Bond Policy Division of the Ministry of Strategy and Finance (MOSF) has been running the
official web page of the Korea Treasury Bonds (since Jan. 2011) to promote and revitalize the government bond
market. The one-stop web page provides information on the government bond market, useful not only to market
specialists, but also retail investors.
<Table 9-1> KTB Market Homepage Menu
Menu Contents
Government bonds
Understanding government bonds
(GBs)
About History History of major policies
Government
Types of GBs Comparison of government bonds (e.g. KTBs, MSBs, NHBs, etc.)
Bonds
Types of KTBs Explanation of KTBs (Nominal bonds and KTBis)
KTB-related markets KTB futures, KTB ETF, STRIPS, Repo
Primary market Procedure, method, plan, auction result
Secondary market Current secondary market, KRX market, OTC market

Government
Redemption of KTBs Overview, maturity/early redemption, conversion offer
Bond Markets
KTBs of Primary
Significance, status, qualifications, incentives and obligations
Dealers
Primary market Issuance by type/outstanding amount, holdings by institution, etc.
Secondary market GB trade, trade by investor, GB yield curve, etc.
Statistics KTB Futures Futures trade, trade by investor, basis/disparate ratio
KTB ETF ETF trade, disparate ratio, portfolio by type, tracking error ratio
Foreign investments Current holdings, buy & sell, net-buying, trade by type
Press release MOSF press release, IR schedule, etc.

Press Release
Reports Upload of various GD-related reports
FAQ Frequently asked questions by topic

FAQ
Calender Major events (new listing, redemption, IR, etc.)
KTB Investment Guide Visual investment procedures

2016
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
Annex : Statistics
1. Major KTB Trends
2. KTBs by Maturity
3. Outstanding Amounts and Time-to-Maturity Structure
4. Redemption Amounts on Maturity by Year
5. Yearly Issuance Amount
6. Issuance Amount by Type
7. Outstanding Amount by Type
8. Trading Volume by Type
9. Turnover Ratio by Type
10. Foreign Holdings by Type
11. Holdings by Foreign Investor
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
+ + + + + + + + + + +
Annex : Statistics ｜ 133
01 Major KTB Trends
Annex : Statistics
 Yearly Results
(KRW trn, %, end of year)
’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16. 6
Outstanding KTBs 280.9 310.1 340.1 362.9 400.7 438.3 485.1 516.7
(proportion to total
(27.7%) (27.8%) (28.3%) (28.1%) (28.7%) (30.1%) (31.2%) (32.4%)
outstanding bonds)
Issuance amount 85.0 77.7 81.3 79.7 88.4 97.5 109.3 58.5
3-year 28.2 17.2 21.2 19.4 23.1 24.3 26.7 13.7

(proportion) (33.2%) (22.2%) (26.0%) (24.3%) (26.1%) (24.9%) (24.5%) (23.4%)
5-year 32.8 27.7 25.2 23.5 22.7 25.5 29.7 15.3

(proportion) (38.6%) (35.6%) (31.1%) (29.5%) (25.7%) (26.2%) (27.2%) (26.2%)
10-year 15.9 20.4 21.3 20.6 23.8 25.7 27.9 13.6

(proportion) (18.7%) (26.2%) (26.2%) (25.9%) (26.9%) (26.3%) (25.6%) (23.3%)
KTBi 1.3 1.4 3.7 1.1 0.9 1.8 1.4

-
(proportion) (1.6%) (1.7%) (4.7%) (1.2%) (1.0%) (1.7%) (2.4%)
20-year 8.0 11.2 12.2 10.8 8.7 10.8 11.0 6.1

(proportion) (9.5%) (14.3%) (15.0%) (13.6%) (9.9%) (11.0%) (10.0%) (10.4%)
30-year 1.6 9.0 10.3 12.1 8.4

- - -
(proportion) (2.1%) (10.2%) (10.6%) (11.1%) (14.3%)
Bid to cover ratio 156.7 304.7 386.0 464.9 412.1 409.1 372.7 393.0
Average financing rate 4.64 4.48 3.95 3.23 3.14 3.02 2.15 1.70
Average time to maturity 4.96 5.33 5.56 5.96 6.50 7.11 7.62 7.86
Redemption
43.4 48.5 51.3 56.8 50.6 59.9 62.4 26.8
(A+B+C)
Maturity(A) 27.9 26.2 24.2 42.8 42.1 51.6 45.7 21.9
10.0 19.4 22.3 12.0 5.6 5.2 12.1 1.1

Buy-backs(B)
(3.0) (3.5) (3.6) (-) (-) (-) (5.9) (-)
Conversion
5.5 2.9 4.8 2.0 2.9 3.1 4.6 3.8
offer(C)
3-year 4.05 3.71 3.62 3.13 2.793 2.589 1.794 1.475
5-year 4.64 4.30 3.89 3.24 2.999 2.836 1.974 1.581

Average
10-year 5.17 4.77 4.20 3.44 3.277 3.183 2.304 1.819
rate
20-year 5.39 4.97 4.33 3.53 3.459 3.375 2.478 1.906
30-year - - - 3.13 3.565 3.460 2.549 1.934

’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16. 6
Trading amount of KTBs* 1,484.3 1,955.9 2,285.1 2,876.8 2,976.7 2,661.0 3,056.3 1,798.2
(proportion to total
(57.6%) (58.1%) (61.8%) (67.2%) (68.4%) (67.0%) (69.7%) (73.1%)
bonds)
3-year 719.9 732.8 711.9 686.4 689.4 607.9 908.1 813.2
5-year 644.3 920.5 1,078.6 1,505.6 1,363.4 1,349.1 1,480.2 663.2
10-year 103.2 265.5 422.1 592.5 802.7 616.5 557.4 264.3
20-year 16.9 37.1 72.6 90.5 90.6 58.0 69.3 30.5
30-year - - - 1.8 30.5 29.4 41.4 26.7
Turnover ratio of
528.5 630.8 672.0 792.7 742.9 607.2 630.0 348.0
KTBs(%)*
(Turnover ratio of
(254.2) (301.2) (308.2) (331.3) (311.7) (273.1) (281.5) (155.3)
total bonds)
Foreign holdings
27.5 47.7 60.9 56.9 58.7 65.9 67.7 70.4
of KTBs**
(proportion to
(9.8%) (15.4%) (17.9%) (15.7%) (14.5%) (15.0%) (14.0%) (13.6%)
outstanding KTBs)
Number of PDs**** 15.5 15.5 18.5 22.1 25.3 30.9 32.8 40.1
(proportion to
(5.5%) (5.0%) (5.4%) (6.1%) (6.3%) (7.0%) (6.8%) (7.8%)
outstanding KTBs)
KTB Holders 280.9 314.9 348.9 375.1 416.3 457.5 507.4 539.5
Banks 122.0 139.1 148.4 140.5 152.1 164.8 165.1 172.2
Pension Funds 78.9 73.8 82.9 78.8 81.0 81.3 92.2 94.8
Insurance 46.7 62.6 72.5 81.2 97.4 112.7 130.0 131.8
Securities 14.8 19.9 23.5 36.5 43.9 52.7 62.4 64.4
Investment Trust 14.0 14.5 17.7 18.4 19.9 22.7 32.6 42.2
Others 4.5 5.0 4.0 19.6 22.0 23.2 25.0 34.1
* Source：KRX
** Source：Koscom
*** Source：KSD
 2015 Monthly Results
Annex : Statistics
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Issuance amount 9.0 8.7 9.6 8.6 9.0 8.4 9.5 10.5 10.2 9.5 9.9 6.5 109.3
3-year 2.3 2.3 2.3 2.3 1.9 2.4 2.6 2.3 2.8 2.0 2.0 1.6 26.7
5-year 2.3 1.9 2.6 2.1 2.5 2.2 2.6 3.6 2.8 3.0 2.5 1.6 29.7
10-year 2.3 2.5 2.5 2.1 2.4 2.0 2.6 2.8 2.3 2.2 2.6 1.7 27.9
KTBi 0.1 0.1 0.1 0.3 0.3 0.1 0.1 0.1 0.2 0.3 0.3 0.0 1.8
20-year 0.9 1.0 1.0 0.8 0.9 0.8 0.7 0.8 1.1 1.1 1.0 0.7 11.0
30-year 1.0 1.0 1.1 1.0 1.0 0.9 0.9 0.9 1.1 0.9 1.4 0.9 12.1
Bid to cover ratio 401.2 395.5 392.4 388.3 382.9 378.8 377.1 378.0 377.0 376.3 373.5 372.7 372.7
Average financing rate 2.34 2.26 2.22 2.00 2.31 2.21 2.23 2.13 2.05 1.91 2.08 2.09 2.15
Average time to
7.08 7.08 7.22 7.19 7.19 7.31 7.27 7.24 7.51 7.49 7.50 7.62 7.62
maturity
Redemption
0.1 1.3 9.9 1.4 1.7 10.9 1.2 1.6 19.3 1.8 2.0 11.4 62.4
(A+B+C)
Maturity(A) - - 8.5 - - 9.5 - - 18.7 - - 9.1 45.7
Buy-backs(B) - 1.3 1 1 1.0 0.5 1 1 _ 1.4 1.6 2.4 12.1
Conversion
0.1 0.1 0.4 0.4 0.7 0.9 0.1 0.5 0.6 0.4 0.4 0.0 4.6
offer(C)
3-year 2.039 2.024 1.865 1.739 1.875 1.773 1.777 1.735 1.651 1.627 1.752 1.719 1.794
5-year 2.158 2.116 1.969 1.857 2.110 2.040 2.048 1.946 1.846 1.784 1.945 1.902 1.974
Aver
age 10-year 2.415 2.346 2.276 2.177 2.490 2.468 2.450 2.308 2.216 2.088 2.254 2.181 2.304
rate
20-year 2.603 2.518 2.466 2.373 2.710 2.679 2.658 2.498 2.388 2.222 2.366 2.278 2.478
30-year 2.700 2.601 2.548 2.457 2.794 2.763 2.739 2.580 2.466 2.271 2.402 2.3 2.549
Trading amount of
252.4 209.0 303.9 276.5 235.0 274.6 251.5 231.6 251.9 254.9 263.1 251.8 3,056.3
KTBs*
3-year 59.1 52.2 69.2 66.3 75.9 84.3 75.0 70.1 82.3 77.8 95.4 100.5 908.1
5-year 137.2 107.2 162.2 143.5 102.4 126.4 122.5 112.4 117.4 124.6 119.4 105.1 1,480.2
10-year 45.8 41.4 61.2 56.8 47.6 54.3 46.0 40.8 43.3 41.8 39.3 39.1 557.4
20-year 6.2 5.1 6.9 6.5 5.6 5.7 4.9 5.3 5.5 7.4 5.2 5.0 69.3
30-year 4.1 3.0 4.5 3.4 3.5 3.9 3.1 3.0 3.4 3.4 3.8 2.2 41.4
Turnover ratio of
56.5 46.0 66.9 59.9 50.1 58.9 53.0 47.9 53.1 52.9 53.7 51.9 630.0
KTBs(%)*
(Turnover ratio of
25.0 20.2 29.7 25.7 22.6 27.7 23.7 20.9 23.2 22.4 23.2 22.5 281.5
total bonds)
Foreign holdings
65.9 67.3 68.8 69.6 70.2 69.5 68.2 68.2 67.1 67.9 67.9 67.7 67.7
of KTBs**
(proportion to
14.7 14.8 15.1 15.1 15.0 14.9 14.4 14.1 14.1 14.1 13.9 14.0 14.0
outstanding KTBs)
Number of PDs*** 31.7 33.8 31.8 32.0 32.0 32.6 33.7 35.9 35.8 35.6 34.7 32.8 32.8
(proportion to
7.1 7.4 7.0 7.0 6.8 7.0 7.1 7.4 7.5 7.4 7.1 6.8 6.8
outstanding KTBs)
KTB Holders 466.6 474.3 474.6 482.3 490.0 488.0 496.3 505.6 496.8 504.8 512.9 507.4 507.4
Banks 166.2 164.2 171.2 163.4 164.8 172.3 162.7 168.0 162.7 162.5 162.9 165.1 165.1
Pension Funds 81.0 84.1 79.4 85.1 84.3 80.2 84.9 85.7 87.2 89.4 90.3 92.2 92.2
Insurance 111.6 116.5 115.7 119.1 120.3 119.0 123.6 123.6 123.4 127.1 130.5 130.0 130.0
Securities 58.3 58.9 59.6 60.1 65.3 64.0 66.5 68.2 66.2 64.3 66.4 62.4 62.4
Investment Trust 24.4 25.7 24.1 29.5 30.0 28.2 32.4 33.6 31.4 35.6 36.3 32.6 32.6
Others 25.1 24.9 24.5 25.2 25.4 24.3 26.2 26.6 25.9 25.9 26.5 25.0 25.0
* Source：KRX
** Source：Koscom
*** Source：KSD
 2016 Monthly Results
Annex : Statistics
Jan Feb Mar Apr May Jun Total
Issuance amount 8.9 10.2 9.8 9.0 9.9 10.8 58.5
3-year 2.3 2.3 2.3 1.9 2.5 2.5 13.7
5-year 2.3 2.8 2.4 2.4 2.5 3.0 15.3
10-year 2.1 2.6 2.5 2.2 2.0 2.1 13.6
KTBi 0.1 0.2 0.3 0.1 0.1 0.5 1.4
20-year 0.8 0.8 1.1 1.2 1.2 1.1 6.1
30-year 1.2 1.5 1.2 1.2 1.7 1.6 8.4
Bid to cover ratio 376.0 376.4 377.8 383.2 390.3 393.0 393.0
Average financing rate 1.90 1.73 1.74 1.69 1.68 1.51 1.70
Average time to
7.59 7.58 7.72 7.71 7.70 7.86 7.86
maturity
Redemption
0.5 1.0 11.0 1.2 0.7 12.4 26.8
(A+B+C)
Maturity(A) - - 10.3 - - 11.5 21.9
Buy-backs(B) 0.0 0.6 0.0 0.6 _ _ 1.1
Conversion
0.5 0.5 0.6 0.6 0.7 0.8 3.8
offer(C)
3-year 1.628 1.474 1.498 1.468 1.455 1.334 1.475
5-year 1.772 1.586 1.611 1.569 1.551 1.406 1.581

Aver
age 10-year 2.025 1.826 1.854 1.810 1.787 1.617 1.819
rate
20-year 2.121 1.919 1.918 1.892 1.886 1.712 1.906
30-year 2.157 1.946 1.942 1.920 1.912 1.739 1.934

Trading amount of
276.4 262.6 353.9 266.7 264.7 374.0 1,798.2
KTBs*
3-year 111.8 114.2 168.4 113.9 121.4 183.8 813.2
5-year 116.9 101.6 126.6 102.1 93.8 122.3 663.2
10-year 39.1 38.0 48.5 47.0 40.4 56.6 264.3
20-year 5.1 4.4 5.8 4.6 4.9 5.6 30.5
30-year 3.6 4.3 4.5 4.4 4.1 5.8 26.7
Turnover ratio of
56.0 52.2 70.6 53.4 51.1 72.4 348.0
KTBs(%)*
(Turnover ratio of
24.3 23.2 29.7 22.9 23.9 32.1 155.3
total bonds)
Foreign holdings
68.0 67.4 68.3 70.0 70.4 70.4 70.4
of KTBs**
(proportion to
13.8 13.4 13.6 13.8 13.6 13.6 13.6
outstanding KTBs)
Number of PDs*** 33.6 35.2 35.2 40.3 40.9 40.1 40.1
(proportion to
6.8 7.0 7.0 7.9 7.9 7.8 7.8
outstanding KTBs)
KTB Holders 515.8 524.2 523.8 532.1 541.6 539.5 539.5
Banks 160.3 161.9 168.4 161.4 163.9 172.2 172.2
Pension Funds 90.7 91.0 92.5 94.3 94.8 94.8 94.8
Insurance 129.2 129.0 132.6 132.8 134.1 131.8 131.8
Securities 67.8 69.5 65.1 67.2 67.8 64.4 64.4
Investment Trust 37.0 40.2 34.9 41.3 45.9 42.2 42.2
Others 30.9 32.3 30.3 34.9 35.1 34.1 34.1
* Source：KRX
** Source：Koscom
*** Source：KSD
02 KTBs by Maturity
Annex : Statistics
 2015 Monthly Data
(KRW trn, %, end)
Issue amount 2.3 2.3 2.3 2.3 1.9 2.4 2.6 2.3 2.8 2.0 2.0 1.6 26.7
Winning rate 2.130 1.975 1.995 1.710 1.885 1.745 1.830 1.760 1.745 1.590 1.676 1.815 1.824
Bid-to-cover ratio 411.8 387.5 412.5 413.1 385.0 380.3 373.1 379.1 367.4 379.0 353.5 360.7 383.4
3-year
Trading amount 59.1 52.2 69.2 66.3 75.9 84.3 75.0 70.1 82.3 77.8 95.4 100.5 908.1
Market rate 2.039 2.024 1.865 1.739 1.875 1.773 1.777 1.735 1.651 1.627 1.752 1.719 1.794
Issue amount - 0.3 0.1 0.1 0.2 9.7 0.2 0.2 - 0.3 0.4 9.6 21.1
Issue amount 2.3 1.9 2.6 2.1 2.5 2.2 2.6 3.6 2.8 3.0 2.5 1.6 29.7
Winning rate 2.183 2.095 2.075 1.825 2.075 2.052 2.148 2.033 1.875 1.820 1.995 2.017 2.016
5-year
Trading amount 137.2 107.2 162.2 143.5 102.4 126.4 122.5 112.4 117.4 124.6 119.4 105.1 1480.2
Market rate 2.158 2.116 1.969 1.857 2.11 2.04 2.048 1.946 1.846 1.784 1.945 1.902 1.974
Issue amount - 0.5 8.9 0.5 0.7 0.8 0.4 0.7 6.0 1.1 1.1 1.3 22.1
Issue amount 2.4 2.5 2.6 2.3 2.7 2.1 2.7 2.9 2.5 2.5 2.9 1.7 29.7
Winning rate 2.405 2.435 2.357 2.147 2.525 2.465 2.475 2.315 2.270 2.090 2.292 2.220 2.339
10-year
Trading amount 45.8 41.4 61.2 56.8 47.6 54.3 46.0 40.8 43.3 41.8 39.3 39.1 557.4
Market rate 2.415 2.346 2.276 2.177 2.49 2.468 2.45 2.308 2.216 2.088 2.254 2.181 2.304
Issue amount 0.1 0.4 0.8 0.8 0.8 0.3 0.6 0.6 13.3 0.4 0.5 0.6 19.2
Issue amount 0.9 1.0 1.0 0.8 0.9 0.8 0.7 0.8 1.1 1.1 1.0 0.7 11.0
Winning rate 2.470 2.590 2.365 2.495 2.680 2.711 2.566 2.412 2.325 2.215 2.395 2.210 2.447
20-year
Trading amount 6.2 5.1 6.9 6.5 5.6 5.7 4.9 5.3 5.5 7.4 5.2 5.0 69.3
Market rate 2.603 2.518 2.466 2.373 2.71 2.679 2.658 2.498 2.388 2.222 2.366 2.278 2.478
Issue amount - - - - - - - - - - - - -
Issue amount 1.0 1.0 1.1 1.0 1.0 0.9 0.9 0.9 1.1 0.9 1.4 0.9 12.1
Winning rate 2.890 2.485 2.615 2.350 2.840 2.600 2.770 2.680 2.560 2.280 2.300 2.430 2.569
30-year
Trading amount 4.1 3.0 4.5 3.4 3.5 3.9 3.1 3.0 3.4 3.4 3.8 2.2 41.4
Market rate 2.7 2.601 2.548 2.457 2.794 2.763 2.739 2.58 2.466 2.271 2.402 2.3 2.549
Issue amount - - - - - - - - - - - - -
1. KTBis (issue and trading amounts) are included in 10-yr KTBs.

2. Issue volume includes competitive and non-competitive purchases and conversion.
3. Bid-to-cover ratio = total bids received in competitive auction in corresponding period/ total issuance amount planned in the competitive auction
4. The accepted rate is weighted (total issue amount through competitive biddings, excluding non-competitive purchase I) in case there are both issuance and pre-issuance.
 2016 Monthly Data

(KRW trn, %, end)

Issue amount 2.3 2.3 2.3 1.9 2.5 2.5 13.7
Winning rate 1.670 1.530 1.517 1.444 1.464 1.385 1.501
Bid-to-cover ratio 372.7 385.2 428.4 408.6 410.1 424.5 405.3
3-year
Trading amount 111.8 114.0 168.4 113.8 121.4 183.8 813.2
Market rate 1.628 1.474 1.498 1.468 1.455 1.334 1.475
Issue amount - - - - - 11.5 11.5
Issue amount 2.3 2.8 2.4 2.4 2.5 3.0 15.3
Winning rate 1.784 1.606 1.590 1.560 1.520 1.402 1.574
5-year
Trading amount 116.9 101.6 126.6 102.1 93.8 122.3 663.2
Market rate 1.772 1.586 1.611 1.569 1.551 1.406 1.581
Issue amount 0.3 0.6 10.8 0.7 0.5 0.6 13.4
Issue amount 2.2 2.8 2.9 2.3 2.2 2.7 15.1
Winning rate 2.010 1.820 1.944 1.829 1.767 1.620 1.833
10-year
Trading amount 39.1 38.0 48.5 41.7 40.4 56.6 264.3
Market rate 2.025 1.826 1.854 1.810 1.787 1.617 1.819
Issue amount 0.3 0.4 0.2 0.5 0.3 0.3 1.9
Issue amount 0.8 0.8 1.1 1.2 1.2 1.1 6.1
Winning rate 2.110 1.855 1.895 1.905 1.900 1.560 1.864
20-year
Trading amount 5.1 4.4 5.8 4.6 4.9 5.6 30.5
Market rate 2.121 1.919 1.918 1.892 1.886 1.712 1.906
Issue amount - - - - - - -
Issue amount 1.2 1.5 1.2 1.2 1.7 1.6 8.4
Winning rate 2.210 2.062 1.940 1.890 1.935 1.820 1.970
30-year
Trading amount 3.6 4.3 4.5 4.4 4.1 5.8 26.7
Market rate 2.157 1.946 1.942 1.920 1.912 1.739 1.934
Issue amount - - - - - - -
1. KTBis (issue and trading amounts) are included in 10-yr KTBs.

2. Issue volume includes competitive and non-competitive purchases and conversion.
3. Bid-to-cover ratio = total bids received in competitive auction in corresponding period/ total issuance amount planned in the competitive auction
4. The accepted rate is weighted (total issue amount through competitive biddings, excluding non-competitive purchase I) in case there are both issuance and pre-issuance.
03 Outstanding Amounts and Time-to-Maturity Structure
Annex : Statistics
 Outstanding KTBs
(Unit: KRW trillion, %)
’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16. 6
3-year 46.3 44.6 50.8 47.7 50.5 58.5 64.1 66.2

(Proportion) (16.5) (14.4) (14.9) (13.1) (12.6) (13.3) (13.2) (14.5)
5-year 102.6 104.0 97.4 95.9 99.4 103.0 110.7 112.6

(Proportion) (36.5) (33.5) (28.6) (26.4) (24.8) (23.5) (22.8) (21.3)
10-year 106.6 123.9 140.9 152.4 165.7 170.1 179.9 192.0

(Proportion) (37.9) (40.0) (41.4) (42.0) (41.4) (38.8) (37.1) (36.7)
KTBi 1.8 2.9 4.1 7.6 8.1 8.4 9.1 10.2

(Proportion) (0.6) (0.2) (1.2) (2.1) (2.0) (1.9) (1.9) (1.9)
20-year 23.6 34.7 46.9 57.7 66.4 77.2 88.1 94.2

(Proportion) (8.4) (11.2) (13.8) (15.9) (16.6) (17.6) (18.2) (18.0)
30-year 1.6 10.7 21.0 12.1 41.5

- - -
(Proportion) (0.4) (2.7) (4.8) (11.1) (7.7)
Total 280.9 310.1 340.1 362.9 400.7 438.3 485.1 516.7
 Structure of Time-to-Maturity (end of year)

(Unit: KRW 100 million, %)
Year
Time to ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16. 6
maturity
less than 1 year 297,060 278,090 428,090 421,370 515,864 516,440 539,037 320,417
(%) (10.6) (9.0) (12.6) (11.6) (12.9) (11.8) (11.1) (6.2)
1 year~3 years 803,050 848,720 1,016,074 1,044,104 1,041,678 1,075,118 1,217,402 1,255,772
(%) (28.6) (27.4) (29.9) (28.8) (26.0) (24.5) (25.1) (24.3)
3 years~5 years 845,650 961,850 715,564 990,189 854,882 725,652 705,100 786,670
(%) (30.1) (31.0) (21.0) (27.3) (21.4) (16.6) (14.5) (15.2)
5 years~10 years 627,251 665,082 772,161 579,863 830,046 1,083,679 1,177,019 1,394,759
(%) (22.3) (21.5) (22.7) (16.0) (20.7) (24.7) (24.3) (27.0)
More than 10 years 235,522 347,025 468,720 593,408 764,461 981,659 1,212,480 1,409,870
(%) (8.4) (11.2) (13.8) (13.8) (19.1) (22.4) (25.0) (27.3)
Total 2,808,533 3,100,767 3,400,608 3,628,934 4,006,929 4,382,548 4,851,038 5,167,489

04 Redemption Amounts on Maturity by Year (end of Jun. 2016)

(Unit: 100 million)
Year '16 ’17 ’18 ’19 ’20 ‘21 ’22 ’23 ’24 ’25 ’26
Amount 320,417 581,610 674,162 308,120 478,550 381,060 152,815 259,724 298,150 303,010 119,682
Year ’27 ’28 ’29 ’30 ’31 ‘33 ’35 ’42 ’44 ’46 Total
Amount 52,030 109,790 114,503 115,193 199,606 176,735 107,681 202,780 150,830 61,040 5,167,489
05 Yearly Issuance Amount

(Unit: trillion)
’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16. 6

Issuance 85.0 77.7 81.3 79.7 88.4 97.5 109.3 58.5
Treasury
Redemption 43.4 48.5 51.3 56.8 50.6 59.9 62.4 26.8
bonds
Outstanding 280.9 310.1 340.1 362.9 400.7 438.3 485.1 516.7
Foreign Issuance 4.0 - - - 1.1 2.1 0.5 0
exchange
Redemption - - - - 1.1 2.6 0.6 0
stabilization
bonds
(won+foreign Outstanding 8.4 8.0 8.1 7.6 7.5 7.0 7.1 7.1
currency)
Issuance 9.6 8.9 10.0 9.7 10.5 12.4 16.2 8.2
National
Housing Redemption 6.2 8.2 10.1 9.1 8.8 10.9 9.7 5.0
bonds
Outstanding 48.3 49.0 48.9 49.5 51.3 52.8 59.3 62.5
Issuance - - 11.7 22.4 36.7 38.0 37.5 16.9
Treasury
Redemption - - 11.7 22.4 36.7 38.0 37.5 10.9
bills
Outstanding - - - - - - - 6.0
Issuance 98.6 86.7 103.0 111.8 136.7 150.0 163.5 83.6
Total Redemption 49.6 56.7 73.1 88.3 97.2 111.4 110.3 42.7
Outstanding 337.5 367.1 397.1 420.0 459.4 498.0 551.5 592.3
1) In terms of issuance
2) Foreign exchange stabilization bond denominated in foreign currency :
quoted by the national debt management check (Additional or deleted amount due to exchange rate change was reflected)
3) ‌Foreign exchange stabilization bond denominated in domestic currency was integrated into KTBs in November 2003 and was redeemed
at the end of 2008. Since 2009, foreign exchange stabilization bond has been denominated in foreign currency only
06 Issuance Amount by Type
Annex : Statistics
(Unit：KRW tn, %)
’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16. 6
Gov. bond 94.5 88.6 103.0 111.8 135.6 147.9 163.0 83.6
(%) (13.6) (15.2) (18.6) (19.8) (24.1) (26.1) (25.7) (28.0)
KTBs 85.0 77.7 81.3 79.7 88.4 97.5 109.3 58.5

(%) (12.2) (13.6) (14.7) (14.1) (15.7) (17.2) (17.2) (19.6)
Municipal 5.3 4.7 4.1 5.3 4.5 4.6 5.8 1.6

(%) (0.8) (0.8) (0.7) (0.9) (0.8) (0.8) (0.9) (0.5)
MSB 375.5 248.2 197.1 167.2 175.0 189.9 188.0 90.8

(%) (53.9) (43.4) (35.5) (29.5) (31.1) (33.6) (29.6) (30.4)
Non-financial special 73.2 80.0 67.7 107.5 85.3 64.0 87.7 26.7
(%) (10.5) (14.0) (12.2) (19.0) (15.1) (11.3) (13.8) (9.0)
Financial special 46.6 56.8 49.3 49.4 51.0 51.1 78.7 42.6
(%) (6.7) (9.9) (8.9) (8.7) (9.1) (9.0) (12.4) (14.3)
Corporate 100.8 95.3 133.6 124.7 112.1 108.4 111.3 53.0

(%) (14.5) (16.7) (24.1) (22.0) (19.9) (19.2) (17.5) (17.8)
Non-financial 66.4 55.0 88.0 86.4 71.4 62.4 61.8 27.8

(%) (9.5) (9.6) (15.9) (15.3) (12.7) (11.0) (9.7) (9.3)
Financial 34.0 40.0 44.7 38.3 40.3 45.7 49.2 25.1

(%) (4.9) (7.0) (8.1) (6.8) (7.2) (8.1) (7.8) (8.4)
Foreign bonds 0.4 0.2 0.0

- - - - -
(%) (0.1) - -
Total 696.3 573.6 554.9 566.0 563.4 565.7 634.6 634.6
1) In terms of listed bonds in KRX

2) Includes listed amount of T-bills, excludes foreign exchange stabilization bond (denominated in foreign currency)
3) ‌Non-special financial bond and special financial bond distinguished since 2002 (before 2002, special financial bonds were included in
non-special financial bonds)
07 Outstanding Amount by Type

(Unit：KRW trn, %)
’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16. 6
Gov. bond 329.1 360.2 389.0 412.4 452.0 491.0 544.4 585.2
(%) (32.5) (32.3) (32.4) (31.9) (32.4) (33.7) (35.0) (36.7)
KTBs 280.9 310.0 340.1 362.9 400.7 438.3 485.1 516.7

(%) (27.7) (27.8) (28.3) (28.1) (28.7) (30.1) (31.2) (32.4)
Municipal 15.3 16.2 17.1 17.4 18.5 19.5 21.2 21.5

(%) (1.5) (1.5) (1.4) (1.3) (1.3) (1.3) (1.4) (1.3)
MSB 149.2 163.5 168.5 163.1 165.4 178.0 182.1 181.4

(%) (14.7) (14.6) (14.0) (12.6) (11.9) (12.2) (11.7) (11.4)
(%) (19.1) (21.4) (20.7) (22.9) (23.8) (22.7) (20.0) (18.8)
(%) (7.1) (7.2) (6.3) (5.6) (5.9) (6.0) (9.0) (9.2)
Corporate 254.1 256.5 301.0 331.5 345.7 349.2 357.2 362.3

(%) (25.1) (23.0) (25.1) (25.7) (24.8) (24.0) (22.9) (22.7)
Non-financial 133.9 147.8 185.0 216.3 227.3 220.9 218.8 213.7

(%) (13.2) (13.2) (15.4) (16.7) (16.3) (15.2) (14.1) (13.4)
Financial 119.0 107.7 112.7 114.1 117.5 127.7 137.7 143.9

(%) (11.7) (9.6) (9.4) (8.8) (8.4) (8.8) (8.8) (9.0)
Foreign bonds 0.4 0.4 0.4 0.0 0.0 0.0 0.2 0.0
(%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (-) (-)
Total 1,013.5 1,116.8 1,200.1 1,292.4 1,395.3 1,455.1 1,557.3 1,596.6
1) In terms of listed bonds in KRX

2) Includes listed amounts of T-bills, excludes foreign exchange stabilization bond (denominated in foreign currency)
3) ‌Non-special financial bond and special financial bond distinguished since 2002 (before 2002, special financial bonds were included in
08 Trading Volume by Type
Annex : Statistics
(Unit：KRW trn, %)
’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16. 6
Gov. bond 1,574.9 2,125.8 2,359.4 2,961.3 3,082.4 2,802.9 3,211.6 1,910.3
(%) (61.1) (63.2) (63.8) (69.2) (70.9) (70.5) (73.3) (77.1)
KTBs 1,484.3 1,955.9 2,285.1 2,876.8 2,976.7 2,661.0 3,056.3 1,797.8

(%) (57.6) (58.1) (61.8) (67.2) (68.4) (67.0) (69.7) (72.5)
Municipal 11.4 20.9 11.9 13.9 13.3 14.2 17.3 7.1

(%) (0.4) (0.6) (0.3) (0.3) (0.3) (0.4) (0.4) (0.3)
MSB 537.0 707.9 808.8 748.6 707.2 615.8 637.8 292.1

(%) (20.8) (21.0) (21.9) (17.5) (16.3) (15.5) (14.6) (11.8)
(%) (4.4) (3.8) (3.3) (4.4) (4.0) (3.9) (3.2) (2.6)
(%) (5.1) (5.1) (4.3) (2.7) (2.8) (3.1) (3.3) (3.3)
Corporate 208.0 208.3 236.3 252.1 251.2 262.7 234.2 123.3

(%) (8.1) (6.2) (6.4) (5.9) (5.8) (6.6) (5.3) (5.0)
Non-financial 85.7 78.1 92. 110.2 107.0 95.4 73.9 41.3

(%) (3.3) (2.3) (2.5) (2.6) (2.5) (2.4) (1.7) (1.7)
Financial 121.4 112.7 129.0 137.4 143.7 166.4 159.5 81.6

(%) (4.7) (3.4) (3.5) (3.2) (3.3) (4.2) (3.6) (3.3)
Total 2,578.0 3,364.0 3,698.5 4,281.6 4,348.7 3,973.5 4,383.2 2,478.8
1) KRX : Trading amount in KRX

‌OTC : Trading statistics through data terminal of Koscom (only 50% of the statistics was reflected, on assumption of two-way reporting of
buying and selling)
09 Turnover Ratio by Type
(Unit：%)
’09 ’10 ’11 ’12 ’13 ’14 ’15 ‘16. 6
Gov. bond 477.5 590.1 606.6 718.7 682.0 570.8 590.0 326.4
KTBs 528.5 630.8 672.0 792.7 742.9 607.2 630.0 347.9
Municipal 74.5 129.0 69.7 78.6 72.0 73.0 81.8 33.3
MSB 359.8 432.9 480.1 455.0 427.6 346.0 350.2 161.0
Corporate 81.9 81.2 77.9 94.6 72.7 75.2 65.6 34.0
Non-financial 64.0 52.9 50.2 55.9 47.1 43.2 33.8 19.3
Financial 102.0 104.7 114.5 122.0 122.4 130.3 115.9 56.7
Total 254.2 301.2 308.2 331.3 311.7 273.1 281.5 155.3
1) Turnover ratio : (Total issuance amount in KRX and OTC market)/(Listed amount at the end of the year)*100
2) ‌‌Non-special financial bond and special financial bond distinguished since 2002 (before 2002, special financial bonds were included in
3) Issuance amount after 2003 applied to the revised bond classification system in accordance with Capital Market Act(4th February 2009)
4) ‌Part of special financial bonds were reclassified into non-special financial bonds and corporate bonds due to the establishment of Korea
Finance Corporation and KDB Financial Group on 28th October 2009
10 Foreign Holdings by Type
Annex : Statistics
(Unit：KRW 100 million, %)
Special (MSBs
Government Corporate Municipal Total
included)
275,385 3,362 2 286,115 564,864

’09
(48.8%) (0.6%) (0.0%) (50.6%) (100%)
477,450 3,047 1 261,425 741,923

’10
(64.4%) (0.4%) (0.0%) (35.2%) (100%)
609,923 5,388 13 214,951 830,274

’11
(73.5%) (0.6%) (0.0%) (25.9%) (100%)
572,283 28 331,874 910,165

’12 5,980(0.7%)
(62.9%) (0.0%) (36.5%) (100%)
586,914 3,151 11 388,480 957,381

’13
(62.0%) (0.3%) (0.0%) (38.6%) (100%)
658,888 2,134 0 342,598 1,003,621

’14
(65.7%) (0.2%) (0.0%) (34.1) (100%)
688,880 2,052 0 334,806 1,025,739

’15.1Q
(67.2%) (0.2%) (0.0%) (32.6) (100%)
694,998 1,956 0 358,986 1,055,940

’15.2Q
(65.8%) (0.2%) (0.0%) (34.0) (100%)
672,561 1,981 0 343,731 1,018,273

’15.3Q
(66.0%) (0.2%) (0.0%) (33.8) (100%)
678,905 1,853 0 332,886 1,013,644

’15.4Q
(67.0%) (0.2%) (0.0%) (32.8) (100%)
686,614 611 0 286,842 974,067

’16.1Q
(70.5%) (0.1%) (0.0%) (29.4) (100%)
708,176 706 0 249,297 962,082

’16.2Q
(73.6%) (0.1%) (0.0%) (25.9) (100%)
* Source: FSS
11 Holdings by Foreign Investor
(unit : KRW trn)
’09 ’10 ’11 ’12 ’13 ’14 ’15 ‘16. 6
Total Foreign Holdings 56.5 74.2 83.0 91.0 94.7 100.4 101.4 96.2
(Proportion) (5.6) (6.6) (6.9) (7.0) (6.8) (6.9) (6.5) (6.0)
Banks and 18.8 18.9 17.7 18.5 9.5 10.2 7.9 7.0
Securities (33.4) (25.4) (21.3) (20.3) (10.0) (10.2) (7.3) (7.3)
Foreign Central 6.4 14.8 26.6 32.6 39.6 45.5 45.6 49.1
Banks (11.4) (19.9) (32.0) (35.8) (41.8) (45.4) (45.0) (51.0)
27.8 36.4 31.5 31.6 35.7 31.9 31.4 24.3

Global Funds
(49.5) (49.1) (38.0) (34.7) (37.7) (31.8) (31.0) (25.2)
Pesion Funds / 0.8 1.9 2.0 2.6 2.9 3.7 4.1 3.8
Insurance (1.5) (2.5) (2.4) (2.9) (3.0) (3.7) (4.1) (4.0)
2.6 2.3 5.2 5.7 7.1 9.0 12.3 12.0

Others
(4.6) (3.1) (6.3) (6.3) (7.5) (8.9) (12.1) (12.5)
First edition December 2016
Publisher Ministry of Strategy and Finance
Editor Government Bond Policy Division

Tel : +82-44-215-5134
Fax : +82-44-215-8109
Publication registration No 11-1051000-000417-10
Printing SAMIL Planning
1. No part of the materials in this book may be copied or reproduced
2. Inquire about more information to the writer.

Korea Treasury Bonds 2016

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Korea Treasury Bonds 2016

Transféré par

Droits d'auteur :

Formats disponibles

Publication registration No http://ktb.mosf.go.

Ministry of Strategy and Finance 11 1. Overview

Ⅵ. KTB-related Markets 91 3. KTB Futures

127 1. Retail Investors and KTB Auctions

133 1. Major KTB Trends

Annex : Statistics 143 6. Issuance Amount by Type

2016 18 <Table 1-3> Major Market Stabilization Measures from 2009~2015

30 <Table 2-1> KTB Issuance (performance-based)

51 <Table 3-1> Example of Determining Winning Rates

63 <Table 4-1> KRX Trading System

76 <Table 5-1> Listing and Delisting Date of KTBs

91 <Table 6-1> Average Daily Trading Vol. of KTB Futures

115 <Table 8-1> Foreign Investors’ Bond Holdings

129 <Table 9-1> KTB Market Homepage Menu

Ministry of Strategy and Finance

50 [Figure 3-1] Bidding and Issuance Process

62 [Figure 4-1] KTB Secondary Market

77 [Figure 5-1] Bond Registration Procedure

89 [Figure 6-1] Repo Trading Process

118 [Figure 8-1] Investment Process for Foreigners

128 [Figure 9-1] Procedure of Non-PDs’ Participation in KTB Auctions

Ministry of Strategy and Finance

<Table 1-1> Outstanding Balance and Trading Volume of Domestic Bonds

Korea U. S. Japan U. K. France Germany

Trading volume 31.2 73.6 181.5 77.0 72.2 36.9

(1) Before the 1997 Asian Financial Crisis

A. Early Stage of the Korean Government Bond Market

B. Early Challenges in the Korean Government Bond Market

C. Efforts to Develop the Government Bond Market

(2) After the 1997 Asian Financial Crisis (1998 to 2008)

A. The 1997 Asian Financial crisis

B. Fostering Government Bond Market to Overcome Crisis

C. Attracting Foreign Investment

D. Evaluation of the KTB Market

(3) After the Global Financial Crisis (2009 - Present)

A. Surge in KTB Issuance to Overcome the Financial Crisis

B. Efforts for Smooth Absorption of KTBs

<Table 1-3> Major Market Stabilization Measures from 2009~2015

March, 2009 April, 2013 July, 2015

·‌Downsizing of long-term KTB

C. Introduction of Korean-Style Auction Method

D. Increase in Average-Time to-Maturity

<Table 1-4> Average Time-to-Maturity of KTBs

[Figure 1-1] Average Time-to-Maturity of Government Bonds in Major Countries

U.S. Germany Japan Canada ltaly U.K. France Korea

* Sources : (Korea) KRX, (Others) Finance Ministry, as of the end of 2015

E. Qualitative and Quantitative Growth of Foreign Investment

Jan. 1999 Regularization of KTB issuance

Apr. 1999 Establishment of CD-rate futures market

Jul. 1999 Introduction of primary dealers (PDs) system

Sept. 1999 Establishment of 3-year KTB futures market

Jan. 2000 Grain Management Fund bond consolidated into KTB

May. 2000 Introduction of fungible issue system for KTBs

Jul. 2000 Full implementation of mark-to-market evaluation method

Oct. 2000 Issuance of 10-year KTB

Dec. 2000 Introduction of buy-back system

Feb. 2002 Establishment of Repo market at Korea Stock Exchange(KSE)

May 2002 Establishment of market for KTB futures options

Mandatory trading of benchmark government bonds at KSE and allowance of trading on

Dec. 2002 Establishment of MSB (Monetary Stabilization Bonds) futures market

Aug. 2003 Establishment of 5-year KTB futures market

Jun. 2004 Establishment of regulations on KTB issue and PDs

Jan. 2006 Issuance of 20-year KTB

Mar. 2006 Introduction of STRIPS

·‌Downsizing of long-term KTB