China sells 10-year debt

China’s government sold 26 billion yuan ($3.8 billion) of 10-year bonds, following three failed auctions for shorter-dated debt this month, on speculation inflation will remain subdued.

The finance ministry sold the securities at an average yield of 3.48 percent and a highest of 3.51 percent, according to traders at China Citic Bank Co. and China Construction Bank Corp. in Beijing, who asked not to be identified. It attracted bids for 1.88 times the amount of debt on offer, compared with an average of 1.5 times at auctions this year, the traders said.

“Inflation expectations aren’t that high at the moment so investors are still willing to buy long-term bonds,” said Tang Guohui, a fixed income analyst at Industrial Securities Co. in Shanghai. “The short-term bond auctions failed because the central bank allowed money-market rates to rise.”

The shortage of demand at previous sales reflected concern that the country’s 4 trillion yuan economic stimulus package would cause stock and property market bubbles. The government said last week that consumer prices fell 1.7 percent in June from a year earlier, even as economic growth accelerated to 7.9 percent in the second quarter.

“We don’t see any possibility the global economy will recover rapidly,” said Lu Zhengwei, senior economist at Industrial Bank Co. in Shanghai. “China’s consumer prices will climb at most 3 percent next year.”

The average yield matched the 3.48 percent median estimate in a Bloomberg News survey. The government last sold similar- maturity debt in June at 3.09 percent.

Money Markets

Demand for government debt also rebounded because China State Construction Engineering Corp. moved closer to completing its initial public offering, reducing demand for funds in the financial system.

The Beijing-based company plans to raise as much as 50.2 billion yuan in the world’s biggest IPO since March 2008. It started selling shares to institutional investors yesterday and to retail investors today.

The seven-day repurchase rate, which measures funding availability on the interbank market, fell 31 basis points, or 0.31 percentage point, to 1.96 percent as of 10:05 a.m. in Shanghai, according to the China Interbank Funding Center.

The yield on China’s one-year central bank bills has risen 39 basis points this month to 1.73 percent as policy makers guided rates higher to rein in lending. Loans rose almost fivefold in June from a year earlier to 1.5 trillion yuan.

“It’s still possible for government bill sales to miss their target in the future,” said Huang Yanhong, an analyst at Bank of Nanjing Co., a Chinese lender partly owned by BNP Paribas SA. “It will happen if investors are short of funds amid new share subscriptions and also if the central bank bill yield rises fast.

Source: Bloomberg

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