Bloomberg News

China 7-Year Bond Draws Least Demand in 10 Months on Crunch

July 06, 2011

(Adds analyst comment in third paragraph.)

July 6 (Bloomberg) -- China’s sale of seven-year bonds today drew the least demand in more than 10 months, reflecting a cash crunch after the central bank boosted lenders’ reserve- requirement ratios in each of the last eight months.

The issuance drew bids for 1.55 times the 30 billion yuan ($4.6 billion) on offer, the lowest since a sale of similar- maturity notes on Aug. 18, according to traders at firms participating in government debt auctions. The seven-day repurchase rate, which measures interbank funding availability, has more than doubled in the past month to 7.41 percent.

“Demand for bonds has declined because of the cash shortage,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “The shortage didn’t ease even though banks no longer need to hoard cash to meet quarter-end loan-to-deposit requirements. That was unexpected.”

The securities were issued at an average yield of 3.7 percent, matching the median estimate in a Bloomberg News survey yesterday. The highest winning-bid yield at the sale was 3.74 percent, the traders said.

The yield on seven-year government bonds was 3.71 percent in the secondary market yesterday, according to Chinabond, the nation’s biggest debt clearing house.

The finance ministry in January published a list of 59 financial firms 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: James Regan, Simon Harvey

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.


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