A weak auction sent a new warning signal to the market bonder her Chinaafter a recent mass sale resulting from the strongest appetite for risk and re -establishment of tax on certain debt investments.
The Ministry of Finance sold a new 30 -year -old Special State Bond with an average yield of 2.15% on Friday (22.8.25), higher than December, according to a trader who filed a bid to the auction. At the same auction, he also sold a 10 -year bond at 1.83%, highest than November, according to data collected by Bloomberg.
The ratio of supply to cover, a measure of demand, for the 30 -year bond of 83 billion yuan ($ 11.6 billion) decreased to the lowest level since October. This for the 10 -year bond has been reduced to the lowest level since March.
The second largest bond market in the world has been increasing pressure this month when a liquidity rally has accelerated in Chinese local shares. The reopening of value added tax on bond interest revenue issued by the government and financial institutions, as well as Beijing’s efforts to mitigate deflation by limiting excess productive capacity and excessive price wars have also weakened prices.
“Today’s new CGB bond auction sheds more light on the possible shift in demand for new CGB bonds with income tax,” said Wee Khoon Chong, a strategic analyst in BNY, describing the demand for the two new bonds as “substantially weaker”.
“If such a trend continues, something we see very likely, it will put up on the yields on the next new CGB bond offer,” Wee added.
The yields of the 10 -year state -of -the -art reference bond increased two basis points to 1.78% in secondary transactions on Friday.
The indifferent demand came even when the central bank of China added short -term funds to the financial system for the sixth consecutive session, a move aimed at ensuring plenty of liquidity to stabilize markets.
Other bond demand indicators are mixed. The brokerage negotiable mutual funds watching 30 years of government bonds were among those who attracted the largest inputs during the week to Wednesday, according to data gathered by Bloomberg. Meanwhile, ETFs investing in popular seven -year to ten -year bonds issued by policy banks have seen outflows.