Chinese Bond Auctions Keep Failing


China, a country with more cash and hard assets than it knows what to do with, is having problems in the bond market.

This is the first we’ve noted it, but it’s been happening for a while now.

Bloomberg: China’s government failed to sell as much debt as it planned for the third time in two weeks on speculation the central bank will push up money-market rates to prevent bubbles in stock and property prices.

The finance ministry sold 18.51 billion yuan ($2.7 billion) of the six-month bills, less than the 20 billion yuan on offer, Chinabond said in a statement on its Web site. The average winning yield was 1.6011 per cent, higher than the 0.85 per cent rate at the last sale of 182-day bills on June 19.

Odd, right?

Also odd is that explanations aren’t entirely satisfying.

For example, while this article said it had to do with expectations of rising money-market rates (in other words: why put your money in a bond, when you can do better elsewhere), a recent WSJ article on the subject described the situation like this:

The failures stemmed from a temporary disconnect between the Finance Ministry and investors on the cost of capital as the Chinese economy regains steam and more companies look to raise funds, analysts said. Consumer prices in China have been falling, but economists say that by early next year inflation could reappear, driven by rapid loan growth and higher commodities prices.

While the hiccups suggest the ministry’s borrowing costs may rise, they won’t disrupt Beijing’s effort to spur the economy with large doses of fiscal stimulus. A loose monetary policy by the central bank is also likely to keep the market flush, helping to hold bond yields down.

“Demand on the bills is very lukewarm as many investors are scrambling for cash to subscribe for Sichuan Expressway Co.’s A-share initial public offering next week,” said Chen Xumin, deputy director at the trading department of medium-sized Nanchong Commercial Bank.

We’re not sure exactly what the story is — any insight or links to more clear articles would be appreciated — but is there really that much demand for the Sichual Expressway IPO that the government can sop up a few billion dollars?

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