In the Republic of Korea, bonds and notes are issued by either public offering or private placement. These issuance methods are divided into direct distribution and indirect distribution depending on the involvement of a financial institution, which acts as a managing company during the issuance process.
Debt securities issued by the public sector, such as government bonds and bonds issued by public corporations, are issued via the direct distribution method. KTBs are issued regularly to Primary Dealers and Preliminary Primary Dealers through the electronic auction system that is part of BOK Wire+. In these cases, competitive auction is the usual issuance method, in particular when involving institutional investors. KTB issuances are the representative examples of competitive auction.
Before August 2000, KTB issuance was conducted by multi-price (conventional) auction. Since then, the single-price (dutch) auction has been used for the issuance of KTBs. Non-financial special purpose bonds also tend to be issued in this manner. The differentiated auction method was introduced in September 2009 to fix the problems inherent to the multi-price auction method, as well as those using single-price auction.
Comparison of Determining Winning Rates (Issued amount: KRW 80 billion)
|Bidding institution||Bidding conditions||Winning rate|
|A||4.990%, 20 billion won||All 5.050%||4.990%||4.990%|
|B||5.000%, 20 billion won||5.000%||5.020%|
|C||5.010%, 20 billion won||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|
Under differential pricing, 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.
KTB Bid-to-Cover Ratio