China Fails to Draw Enough Bids at 1-Year Bond Sale (Update2)
April 28, 2010, 2:44 AM EDT
April 28 (Bloomberg) -- China’s finance ministry failed to draw enough bids in its planned 28 billion yuan ($4.1 billion) one-year bond auction as Chinese banks, faced with lending curbs, favored the higher returns offered by longer-dated debt.
The ministry sold 26.67 billion yuan of bonds at an average yield of 1.49 percent, compared with 1.44 percent at the previous sale on March 3, according to a statement on the Web site of Chinabond, the nation’s largest debt clearing house. The highest winning bid was 1.6 percent, and the sale drew bids for 1.22 times the amount on offer, down from 2.12 times last month.
Commercial banks extended 510.7 billion yuan of new loans in March, less than the 709 billion yuan estimated of analysts surveyed by Bloomberg, after the central bank ordered them to set aside larger reserves and moderate credit growth. The State Council said on April 17 that lenders should stop loans for third-home purchases and suspend them for buyers who can’t provide tax returns or proof of social-security contributions.
“As banks extend less loans, they prefer bonds with higher yields to make up their losses,” said Tang Guohui, a fixed- income analyst at Industrial Securities Co. in Shanghai. “The one-year bond yield isn’t attractive enough.”
The Ministry of Finance also failed to draw enough demand for debt offered at sales of 273-day and 91-day treasury bills on April 9 as banks shunned the relatively low yields offered by shorter-dated securities. In contrast, the central bank sold three-year bills at 2.74 percent on April 22, down 1 basis point from the previous sale.
Rate Outlook
The yield on the 1.44 percent note due in November 2010 rose two basis points to 1.51 percent, and the price of the security declined 0.01 per 100 yuan face amount to 99.96, according to the National Interbank Funding Center. A basis point is 0.01 percentage point.
The People’s Bank of China will raise its benchmark interest rates this quarter, according to the median estimates in Bloomberg surveys of analysts. It hasn’t increased benchmark interest rates since December 2007, before the global financial crisis deepened. The one-year lending and deposit rates are 5.31 percent and 2.25 percent, respectively.
“The major reason for the unsuccessful issue of the debt is that major investors expect some increase in interest rates so they aren’t willing to accept even lower rates,” said Danny Chen, director of corporates at Fitch Ratings in Beijing. “They prefer to wait and see.”
April 28, 2010, 2:44 AM EDT
April 28 (Bloomberg) -- China’s finance ministry failed to draw enough bids in its planned 28 billion yuan ($4.1 billion) one-year bond auction as Chinese banks, faced with lending curbs, favored the higher returns offered by longer-dated debt.
The ministry sold 26.67 billion yuan of bonds at an average yield of 1.49 percent, compared with 1.44 percent at the previous sale on March 3, according to a statement on the Web site of Chinabond, the nation’s largest debt clearing house. The highest winning bid was 1.6 percent, and the sale drew bids for 1.22 times the amount on offer, down from 2.12 times last month.
Commercial banks extended 510.7 billion yuan of new loans in March, less than the 709 billion yuan estimated of analysts surveyed by Bloomberg, after the central bank ordered them to set aside larger reserves and moderate credit growth. The State Council said on April 17 that lenders should stop loans for third-home purchases and suspend them for buyers who can’t provide tax returns or proof of social-security contributions.
“As banks extend less loans, they prefer bonds with higher yields to make up their losses,” said Tang Guohui, a fixed- income analyst at Industrial Securities Co. in Shanghai. “The one-year bond yield isn’t attractive enough.”
The Ministry of Finance also failed to draw enough demand for debt offered at sales of 273-day and 91-day treasury bills on April 9 as banks shunned the relatively low yields offered by shorter-dated securities. In contrast, the central bank sold three-year bills at 2.74 percent on April 22, down 1 basis point from the previous sale.
Rate Outlook
The yield on the 1.44 percent note due in November 2010 rose two basis points to 1.51 percent, and the price of the security declined 0.01 per 100 yuan face amount to 99.96, according to the National Interbank Funding Center. A basis point is 0.01 percentage point.
The People’s Bank of China will raise its benchmark interest rates this quarter, according to the median estimates in Bloomberg surveys of analysts. It hasn’t increased benchmark interest rates since December 2007, before the global financial crisis deepened. The one-year lending and deposit rates are 5.31 percent and 2.25 percent, respectively.
“The major reason for the unsuccessful issue of the debt is that major investors expect some increase in interest rates so they aren’t willing to accept even lower rates,” said Danny Chen, director of corporates at Fitch Ratings in Beijing. “They prefer to wait and see.”