China's First Special Bond Sale Likely To See Solid Demand
Date
5/16/2024 8:24:07 PM
(MENAFN- Live Mint) " China's first issuance of this year's special sovereign bonds on Friday is expected to see solid demand, according to strategists and gauges of sentiment in the bond market. Thirty-year yields have edged lower since the Finance Ministry released its plan Monday to sell 1 trillion yuan of ultra-long debt over a time span of about six months, beginning with a 40 billion yuan auction of that maturity. And interest-rate swaps, an indicator of expectations for short-term borrowing costs, briefly touched a four-year low onshore.“These days banks still have too much idle cash and liquidity is flush, so I presume the auction will see good demand,” said Albert Leung, strategist at Nomura International.
The special bond sale will provide a clue of how demand for debt stands as sentiment swings between bullish expectations of further monetary easing by the People's Bank of China to aid the economy and its bearish warning against excessively low yields. While a local bond rally has faded in recent weeks on fears over extra supply and a recovery in the stock market, the moderate pace of issuance may lead to an easing in concerns. The 30-year notes are expected to see a yield of around 2.55% at Friday's auction, according to the median estimate of six traders who responded to a Bloomberg survey on Thursday who asked not to be named as they were not authorized to speak publicly. That is close to the current 30-year yield of 2.56% in the secondary market. For Ju Wang, head of Greater China FX & rates strategy at BNP Paribas SA, the market“will be able to absorb this issuance sufficiently well.” There's a shortage of investible assets due to weak credit demand and the central bank is seen ensuring interbank liquidity will stay loose, she wrote in a note. The special bonds are part of government efforts to revive an economy afflicted with a property downturn and poor business confidence this year - and to ensure an ambitious annual growth target of about 5% is met. It's only the fourth time in 26 years that China has turned to this type of debt for fiscal stimulus, which allows it to target spending. The auction comes amid signs that leaders are prioritizing efforts to end the property market slump that's weighing on the world's second-largest economy. The sales have brought more attention on China's longer-maturity debt as the pipeline includes 20-year, 30-year and 50-year tenors, Bloomberg reported earlier this week citing people familiar with the matter.
“Rising debt supply as special bond issuance begins will make it harder for China's bond rally to extend, but yields are not too likely to spike significantly either,” said Qi Sheng, an analyst at Orient Securities Co.“Sovereign bonds are still in large demand by domestic institutions.” This article was generated from an automated news agency feed without modifications to text.
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