China Sells Five-Year Bonds Highest Coupon Since September

  • Signs of improving economy pressuring debt market: analyst
  • Yield in secondary market climbs most since February

China issued five-year bonds at the highest cost in six months as data signaling an economic recovery and receding chances of further interest-rate cuts chip away at demand for government debt.

The Ministry of Finance sold 33 billion yuan ($5.1 billion) of securities at a coupon of 2.58 percent on Wednesday, according to a statement posted on the China Central Depository & Clearing Co. website. That’s the highest rate for a new issue of similar maturity since September, data compiled by Bloomberg show, and compares with the median estimate of 2.50 percent in a Bloomberg survey.

The Chinese economy is showing signs of a rebound, with data from factory-gate prices and manufacturing activity to exports all coming in higher than forecast. Of 19 traders and analysts surveyed by Bloomberg earlier this month, 17 predicted the People’s Bank of China will extend a pause in monetary easing this quarter, which will end a nine-quarter long bull run for debt.

“Today’s result is much much higher than people had expected,” said Liu Changjiang, a bond analyst at Soochow Securities Co. in Shanghai. “The recent economic data are really good, leading to a big pressure for the bond market to correct.”

Government bonds extended their decline after the auction, with the yield on notes due January 2021 rising 10 basis points to 2.65 percent as of 5:40 p.m. in Shanghai, according to National Interbank Funding Center prices. That’s the biggest increase since February.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, climbed three basis points to 2.41 percent, data compiled by Bloomberg show. It rose to 2.42 percent earlier, the highest level since November.

— With assistance by Helen Sun

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