China to begin stimulus bond issues this week

Shanghai/Beijing — China’s finance ministry said on Monday it will start the long-awaited sales of long-term treasury bonds that Beijing hopes will help stimulate key sectors of a flagging economy this week.

The finance ministry confirmed what four sources had told Reuters earlier on Monday that the 1-trillion yuan ($138.23bn) of special government bonds would have tenors of 20-50 years and issuance would begin on May 17.

The sources, who had direct knowledge of the plans, said 300-billion yuan worth of 20-year bonds, 600-billion yuan worth of 30-year bonds and 100-billion yuan worth of 50-year bonds would be issued.

Market participants have been waiting for weeks for details of the issuance pipeline of these special treasury bonds, which were first announced during China’s parliamentary conference in March.

Given the issuance was foreseen, news of the details caused bond yields to slip slightly. The yield on 30-year bonds fell two basis points (bps) to 2.55%. It is down 30bps in 2024.

Zou Wang, an investment director at Shanghai Anfang Private Fund Management, said that while such a supply of bonds was negative for prices, it had been priced in.

“In addition, the market now expects the central bank to provide liquidity support through cuts in interest rates and reserve requirements,” he said.

Details of the timeline come just after data showed new bank lending in China fell more than market participants expected in April from the previous month while broad credit growth hit a record low.

The expansion of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to 8.3% in April, a record low, from 8.7% in March.

China’s economy grew at a faster-than-expected 5.3% pace in the first quarter, offering some relief to officials as they try to work through a property downturn and curtail local government debt. However, indicators show that demand at home remains frail, weighing on overall momentum.

Cash raised through the special bonds will support the rebuilding of disaster-hit areas in the country and improve urban drainage prevention infrastructure to boost China’s ability to withstand natural disasters, state media have said.

The Financial Times reported earlier in the day that Chinese authorities had kicked off plans to sell the long-dated bonds and the People’s Bank of China (PBOC) had asked brokers for advice on pricing.

Reuters