China Misses Bond Auction Target for Second Time in Two Months

China’s Ministry of Finance failed to sell all of the one-year bonds offered at an auction today, the second time it has missed the target in two months.

The ministry sold 25.85 billion yuan ($4.15 billion) of the debt at 3.32 percent, less than the planned issuance of 28 billion yuan, according to a statement posted on its website today. It issued 20.7 billion yuan, or 74 percent of its goal, of similar-maturity notes on April 11. One-year securities yielded 3.15 percent in the secondary market yesterday, according to ChinaBond data.

“The one-year yield is quite low, so investors aren’t so interested,” said Chen Jianheng, a Beijing-based bond analyst at China International Capital Corp. “This doesn’t reflect the market’s liquidity expectation. It was because the bids were too scattered, and those too high or low were taken out, resulting in insufficient bids, the same reason as in April.”

The People’s Bank of China has conducted two targeted reserve-requirement cuts this quarter to support agricultural and small companies by lowering funding costs. Consumer prices climbed 2.5 percent in May from a year earlier, the fastest pace in four months, as the official manufacturing Purchasing Managers’ Index rose to a five-month high.

“Current yields have priced in the targeted reserve-ratio cut, and if economic data continue to show a recovery, there is limited room for bond yields to fall further,” said Yan Yan, an analyst at China Guangfa Bank Co. in Shanghai.

The yield on the 4.42 percent government bonds due March 2024 rose two basis points, or 0.02 percentage point, to 4.1 percent, data from the National Interbank Funding Center show.

Policy Outlook

China will fine-tune policy and target prominent economic problems as well as maintain growth within a “reasonable” range, Premier Li Keqiang said yesterday, according to a statement posted on the central government’s website.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, rose two basis points to 3.48 percent as of 4:32 p.m. in Shanghai, according to data compiled by Bloomberg.

The seven-day repo rate, a gauge of interbank funding availability, climbed two basis points to 3.15 percent, according to a weighted average compiled by the National Interbank Funding Center.

The central bank asked lenders to submit orders for 14- and 28-day repurchase agreements, 14-day reverse repos, and 91-day bills for tomorrow, according to a trader at a primary dealer required to bid at the auctions.

— With assistance by Helen Sun

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