•China Fails to Attract Enough Buyers in Bill Sale for Second Time in Week

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    China Fails to Attract Enough Buyers in Bill Sales (Update1)
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    By Bloomberg News

    July 10 (Bloomberg) --
    China failed to attract enough bidders in a government debt sale for a second time this week on speculation that policy makers will rein in money supply to avoid any pickup in inflation.

    The Ministry of Finance sold 25.1 billion yuan ($3.7 billion) in bills of the 35 billion yuan it had sought, according to traders at China Postal Savings Bank and Industrial Securities Co., who asked not to be identified. It sold 12.48 billion yuan of 91-day bills at 1.15 percent and 12.65 billion yuan of 273-day bills at 1.25 percent.

    The People’s Bank of China has been pushing up money-market rates in the past two weeks, seeking to choke off the supply of funds used to speculate on stocks and real estate without derailing a 4 trillion yuan economic stimulus plan. Chinese banks extended 1.53 trillion yuan of new loans in June, more than double the amount in May, the central bank said on July 8.

    “The central bank’s open-market operations suggest concerns that the rapid surge in new bank lending in the first half of this year could fuel inflation,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “Market players have also started to worry about early tightening risk.”

    The yield on the 4.23 percent treasury note due August 2015 surged seven basis points to 2.78 percent, and the price of the security dropped 0.45 per 100 yuan face amount to 108.03, according to the Interbank Bond Market. A basis point is 0.01 percentage point.

    The People’s Bank yesterday resumed one-year bill sales following an eight-month pause, signaling an adjustment away from “extremely loose” monetary policy, Goldman Sachs Group Inc. said.

    Rising Yields

    China bond yields “have not tracked the V-shape move in U.S. Treasury yields” as the global credit crisis eased, Tim Condon, Singapore-based head of Asia research at ING Groep NV, wrote in a research note today. “Over the next six to 12 months we expect monetary tightening to drive the five-year Treasury bond yield back to 4 percent.”

    China’s bond market swelled in size to about $2.2 trillion at the end of March, compared with $1.9 trillion a year earlier, paced by corporate bond sales, according to the Asian Development Bank. Demand has been waning in recent weeks. An auction of 28 billion yuan of five-year government securities on July 3 drew bids for 1.42 times the debt on offer, compared with a 1.65 bid-to-cover ratio in a sale of 28 billion yuan of 10- year notes on June 17.

    The government failed to complete a bond sale on July 8 for the first time in almost six years, selling 27.5 billion yuan of the 28 billion yuan in one-year notes it auctioned.

    --Judy Chen. Editor: Sandy Hendry, James Regan

    To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-7047 or Xchen45@bloomberg.net.
    Last Updated: July 9, 2009 23:38 EDT