China 10-Year Bond Sale Draws 2nd Highest Bids of the Year as Growth Slows

China’s 10-year debt sale drew the second-highest bids of the year on speculation slowing economic growth is giving investors more confidence to put money into longer-term bonds.

The 28 billion yuan ($4.1 billion) auction attracted orders for 2.29 times the amount on offer, up from 1.59 at the last sale of similar-maturity notes in June. The average yield fell to 3.28 percent from 3.41 percent, and was lower than the 3.29 percent median estimate of analysts in a Bloomberg News survey. A 50-year bond issue pulled in bids of 2.63 times in May.

“Long-term debt securities are hot now because investors are more concerned with slower growth than inflation,” said Jiang Chao, an analyst in Shanghai at Guotai Junan Securities Co., the nation’s largest brokerage by revenue. “The economy is likely headed for a double-dip, which may prompt policy makers to loosen policy, such as lowering banks’ reserves this year.”

The nation’s manufacturing expanded at the slowest pace in 17 months in July, based on the purchasing managers’ index from the Federation of Logistics and Purchasing issued on Aug. 1. Gross domestic product increased 10.3 percent from a year earlier in the second quarter following 11.9 percent growth in the previous three months, official figures show.

The People’s Bank of China has asked lenders to set aside more cash as reserves three times this year to contain property prices and inflation. The economy will expand 10 percent this year and 8.9 percent in 2011, based on the median forecasts of economists surveyed by Bloomberg.

In the secondary market, the yield on the government’s 3.41 percent note due in June 2020 dropped one basis point to 3.29 percent, and the price of the security added 0.05 per 100 yuan face amount to 101, according to the National Interbank Funding Center.

-- Belinda Cao. Editor: Simon Harvey, Ven Ram

To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

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