Bloomberg News

China Debt Sale Fails for Third Time in 2011 on Cash Crunch

July 08, 2011

(Adds analyst comment in third paragraph.)

July 8 (Bloomberg) -- China’s finance ministry failed to sell all of the debt offered at an auction for the third time this year as a cash crunch damped demand from banks.

The ministry sold 11.76 billion yuan ($1.82 billion) of 182-day bills, falling short of its 15 billion yuan target, according to traders at financing companies required to bid at the auctions. The seven-day repurchase rate, which measures interbank funding availability, has almost doubled in the past month to 6.25 percent after the central bank pushed lenders’ reserve-requirement ratios to a record 21.5 percent on June 14.

“Demand has declined as a cash shortage continues,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “The cash crunch will probably last at least until the middle of this month.”

The average yield at the sale was 3.70 percent, said the traders who wouldn’t be identified. That compares with yesterday’s 3.30 percent rate for similar-maturity existing securities, according to data compiled by Chinabond, the nation’s biggest debt-clearing house. The highest winning-bid yield was 3.85 percent, they said.

Demand for short-term debt is also cooling after the central bank raised its benchmark one-year lending and deposit rates yesterday for the third time this year to help quell inflation. Data tomorrow is expected to show consumer prices climbed 6.2 percent in June from a year earlier, the most in 34 months, according to the median estimate of economists surveyed by Bloomberg.

Bonds Fall

The yield on the 2.77 percent government bond due May 2012 rose four basis points to 3.35 percent as of 11:18 a.m. in Shanghai, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

The finance ministry failed to sell all the bonds offered at a June 17 auction of one-year notes, as well as at sales of 182-day bills and one-year debt on May 13.

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: James Regan, Andrew Janes

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.

To contact the editor responsible for this story: Bloomberg News at swong139@bloomberg.net


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