China to issue 600b yuan of special T- bonds

Bill rollover will not affect liquidity in banking sector: PBC

China is preparing to roll over a massive 600 billion yuan ($ 90 billion) worth of special Treasury bonds this week in a carefully choreographed operation designed to minimize impact on its stressed money market.

The unusual sale is a belated consequence of the way the country’s sovereign wealth fund, China Investment Corp ( CIC), was set up 10 years ago.

At the time, the central gov- ernment raised 1.55 trillion yuan via eight special Treasury bond offerings in order to capitalize on CIC. The first of these bonds is now coming due.

The refinancing comes amid tight liquidity concerns in the domestic bond market, sparking worries that the enormous amount of supplies will make matters worse.

Those worries were eased, however, after the Ministry of Finance ( MOF) confirmed that the bonds would be privately allocated to a group of banks, with the People’s Bank of China ( PBC) as the ultimate investor, rather than being offered in the public market.

The MOF said that it would place 3.6 percent seven- year and 3.62 percent 10- year notes with designated banks on Tuesday to refinance the maturing 600 billion yuan 4.3 percent 10- year special bonds.

The central bank will then buy all the bonds on the same day from the lenders involved.

“The market had been worried that the MOF might have opted for a more market- based approach, selling notes via auction to a broader set of market participants. This would have soaked up liquidity,” said a Shanghai- based rates trader. “The clarification reassured the market that the impact would be almost zero.”

The PBC said in a statement that the rollover of the special Treasury bonds will not crowd out the primary or secondary market and will not affect liquidity in the banking sector.

The MOF did not disclose which banks would buy the special bonds.