Bloomberg News

China Falls Short on Bond Sale for Second Time This Year

June 17, 2011

(Adds analyst comment in third paragraph.)

June 17 (Bloomberg) -- China’s finance ministry failed to draw enough bids for a bond sale for a second time this year as the central bank steps up efforts to rein in inflation.

The ministry sold 13.35 billion yuan ($2.1 billion) of one- year bonds, falling short of its 20 billion yuan target, according to traders at finance companies required to underwrite the debt. The seven-day repurchase rate, a gauge of interbank funding availability, jumped to a four-month high of 6.88 percent yesterday, after the People’s Bank of China ordered banks to set aside more cash as reserves for a sixth time this year on June 14.

“The auction was affected by tighter liquidity brought by the reserve-ratio hike,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “The high auction yield represents investor expectations for a near-term policy rate hike.”

The average yield at the sale was 3.9576 percent, according to the traders who asked not to be identified. That compared with the median estimate of 3.35 percent in a Bloomberg News survey. The highest winning-bid yield was 4.0821 percent, said the traders.

Demand for short-term debt is cooling as the central bank raises interest rates and lenders’ reserve requirements to quell inflation that’s exceeded the official 4 percent target every month this year. Consumer prices climbed 5.5 percent in May from a year earlier, the most in 34 months, the statistics bureau said June 14.

Debt Offer Scrapped

China Development Bank Corp. yesterday scrapped a 20 billion yuan issue of floating-rate securities due to “market conditions,” according to a statement on Chinabond, the nation’s biggest debt clearing house.

The yield on the 2.77 percent government bond due May 2012 surged 25 basis points to 3.59 percent as of 11:43 a.m. in Shanghai, according to the Interbank Funding Center. That was the biggest jump since the note began trading on May 12. A basis point is 0.01 percentage point.

The finance ministry in January published a list of 59 underwriters required to bid at its debt sales, including Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., Bank of China Ltd., China Construction Bank Corp., China Citic Bank Corp., Postal Savings Bank of China, Industrial Bank Co., Guotai Junan Securities Co. and BOC International (China) Ltd.

--Judy Chen. Editors: Andrew Janes, Simon Harvey

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at

To contact the editor responsible for this story: Sandy Hendry at

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