China Sells Seven-Year Bonds at Lower Yield Than Estimated

China’s finance ministry sold seven-year bonds at a lower yield than traders forecast on speculation demand for the debt will rise as the supply of cash increases.

The ministry issued at least 30 billion yuan ($4.8 billion) of securities at an average yield of 3.39 percent, according to a trader at a finance company that participates in the auctions. That compared with the 3.41 percent median estimate in a Bloomberg News survey. The Shanghai interbank offered rate that banks charge each other for three-month loans has fallen 63 basis points, or 0.63 percentage point, this year to 4.84 percent, the lowest level since June 2011, according to data compiled by Bloomberg.

“The improving liquidity is helping increase banks’ demand for government bonds,” said Liu Junyu, a Shenzhen-based bond analyst at China Merchants Bank Co., the nation’s sixth-biggest lender.

The highest winning-bid yield at the sale was 3.42 percent and the auction drew orders for 1.95 times the amount offered, according to the trader. The bid-to-cover ratio was 2.14 times at the last sale of similar-maturity notes on March 7.

In December, the finance ministry published a list of 55 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.

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