China Seen Selling More Sovereign Bonds in 2016 to Fund Spending

Updated on
  • Guosen Securities forecasts 3 trillion yuan gross issuance
  • Deficit-to-GDP ratio will rise to 3 percent: Shenwan Hongyuan

China’s sovereign bond issuance is forecast to increase by as much as 58 percent next year as the government steps up fiscal efforts to revive the slowing economy.

Guosen Securities Co. sees 3 trillion yuan ($464 billion) of gross sales in 2016, up from 1.9 trillion yuan so far this year, data compiled by Bloomberg show. Shenwan Hongyuan Group Co. projects 2.9 trillion yuan, 38 percent more than its estimate of 2.1 trillion yuan for this year. The Ministry of Finance is considering to increase government debt auctions in 2016, according to people familiar with the matter, who asked not to be identified because the information is private.

Authorities are boosting fiscal stimulus after six interest-rate cuts since November 2014 failed to spur an economy that’s forecast to grow at the slowest pace in a quarter of a century this year. Public spending rose twice as fast as revenue did last month, and Vice Finance Minister Zhu Guangyao said the “red line” of 3 percent for the budget deficit to gross domestic product ratio should be revised, Caixin magazine reported in November.

“There’s plenty of room for China to increase government debt to stabilize growth, and it’s also necessary,” said Chen Kang, a Shanghai-based fixed-income analyst at SWS Research Co., the research unit of Shenwan Hongyuan. “The central government’s debt has the lowest cost, and can help boost the economy efficiently.”

Debt Rally

The yield on China’s sovereign bonds due October 2025 fell two basis points to 3.01 percent as of 4:30 p.m. in Shanghai, National Interbank Funding Center prices show. Yuan-denominated government notes are set for their eighth quarterly advance in a row and have returned 7.2 percent this year, the most in Asia after Indian securities, Bloomberg indexes show.

Gross issuance of 2.9 trillion yuan would result in net sales of 1.4 trillion yuan next year, and this would increase the budget-deficit-to-GDP ratio to 3 percent, according to a research note from Shenwan Hongyuan released on Wednesday. The ratio is 2.3 percent this year.

— With assistance by Helen Sun

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