China boosts two-year bond sales to record amid debt selloff

Chinese bonds face a crucial test this week as the government plans a record issuance of two-year notes just when a debt-market selloff is worsening.

The finance ministry said in a statement it is planning to sell 167 billion yuan (HK$179 billion) of two-year government bonds on Friday, the largest-ever offering of the tenor in a single auction, according to Bloomberg compiled data. Another 30 billion yuan of 30-year notes will be auctioned on Friday, the statement said, flat with the previous issuance.

Chinese bond yields have jumped this year due to the PBOC’s reluctance to ease monetary policy, tight liquidity and optimism toward Chinese stocks. The yield on two-year government debt rose to its highest since October Monday, having surged about 50 basis points since early January, which may deter investors from buying bonds fearing further losses.

The yield on 30-year government bond rose to 2 percent for the first time this year as the selloff extended on Tuesday. Cost on the benchmark 10-year debt climbed three basis points to 1.91 percent.

It may be too early to say the auction result will turn out to be very poor, said Xing Zhaopeng, senior strategist at Australia & New Zealand Banking Group. However, in any case, the auction result will be a barometer of sentiment in the market, he said.

China’s annual debt supply of new government bonds is set to increase to 11.86 trillion yuan this year, after officials raised the general budget deficit target to around 4 percent of GDP, the highest level in more than three decades.

Bloomberg