Investors flock to government bond sale

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Investors flock to government bond sale

By Dong Junyu (Global Times) 08:08, August 23, 2013

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In a sale which drew heavy attention from institutional investors, China's Ministry of Finance (MOF) sold 30 billion yuan ($4.9 billion) in 10-year government bonds bearing a yield of 4.08 percent Wednesday.

The yield of these securities was below what many experts had predicted as institutional demand for fixed-income vehicles accelerated. According to the official Shanghai Securities News, analysts and traders with local commercial banks and securities brokerages had estimated that the bonds would yield between 4.1 and 4.18 percent.

The auction's total draw of 79.95 billion yuan in bids - bring the bid-to-cover ratio to 2.53 - further illustrated the robust demand within the primary market.

The China Central Depository & Clearing Co Ltd (CCDC), the organization that oversees depository and settlement in the interbank market, published a notice Wednesday showing that the MOF would offer an additional 1.73 billion yuan in 10-year notes on top of its original 30 billion yuan issuance.

"Demand was higher this time. The price was attractive, and the 2.53 bid-to-cover ratio indicates that the yield on the note was satisfactory for market players," Hao Yijun, a bond analyst at China Guangfa Bank in Shanghai, told the Global Times.

Following June's sudden cash draught, banks are working to limit asset-liability maturity mismatches in order to improve liquidity, Hao added. Consequently, this has affected how these institutions invest in the bond market as well as their expectations for returns, he went on to say.

In the secondary market, the 10-year benchmark bond yield fell four basis points to 4.04 percent Wednesday following reports of the aggressive tone which characterized the MOF's successful bond auction. Return rates on two- and seven-year treasury bonds were also off by two and five basis points respectively. Yields on short- and medium-term bonds from China's three policy banks lost between one and three basis points as well.

The bonds sold Wednesday will be distributed between August 22 and August 26 and then begin trading in secondary market on August 28. Interest payments are to be paid semiannually starting from August 22, according to information offered by CCDC.

（Editor：ChenLidan、Gao Yinan）