China’s 50-Year Bond Yield Drops at Sale as PBOC Pumps More Cash

China’s debt costs dropped at a sale of 50-year government bonds amid speculation the central bank will ensure ample fund supply to support the economy.

The Ministry of Finance issued 26 billion yuan ($4.2 billion) of debt due May 2064 today at 4.67 percent, according to a statement on the website of the China Central Depository & Clearing Co. That compared with a secondary-market rate at 4.87 percent yesterday and a record-high yield of 5.31 percent at a similar auction in November.

The People’s Bank of China injected the most funds in four months into the financial system this week through open-market operations as analysts forecast the weakest economic expansion since 1990. Inflation fell to a 1 1/2-year low of 1.8 percent in April as producer prices declined for a 26th month.

“The central bank is trying to lower funding costs in a slowdown, hoping to improve liquidity and boost investments,” said Cao Yang, an analyst at Shanghai Pudong Development Bank Co. in the eastern coast of China. “The time of rising yields in long maturities due to de-leveraging is behind us.”

Today’s auction drew bids for 2.3 times the amount offered, said a trader at a finance company that participated in the auction, up from 1.51 times at the November sale.

It’s inappropriate to blindly lower the debt ratio as the biggest risk to the economy lies in the impact of an economic downturn on the real-estate market and local-government financing vehicles, Xu Nuojin, deputy head of the statistics department at the central bank, wrote in an article in the China Securities Journal published April 27. Steady growth creates a healthy environment to de-leverage, according to Xu.

The yield offered in China today is higher than the 2.86 percent at a similar auction last month in Canada or 2.79 percent in Austria in February.

— With assistance by Helen Sun

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE