Bonds Aug 05

Local government bond sales climb in July

Coronavirus-hastened debt sales face headwinds as banks scramble for funds to buy them 

Local government bond sales climb in July

(ATF) China sold 272.2 billion yuan ($39 billion) of local government bonds in July, rocketing total issuance this year to 3.76 trillion yuan as policymakers seek to rebuild the coronavirus-shattered economy.

Analysts have warned, however, that this month’s sales may stretch banks as they seek to pay back 500tn yuan of maturing debt to fund new purchases. 

Data from the Ministry of Finance (MOF) Tuesday showed new sales this year amounted to 2.83tn yuan, or 60% of the 4.73-trillion-yuan quota planned for the year, the MOF data showed.

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The People’s Bank of China central bank has front-loaded bond sales to cope with the reconstruction of the economy, which shrank for the first time in a the first quarter under the weight of the coronavirus downturn. Almost 4tn yuan of special-purpose bonds have been issued, targeting projects specifically begun to reboot the sectors worst hit by the pandemic’s fallout.   

The ministry pledged to continue to quicken bond sales to facilitate the implementation of proactive fiscal policy.

A report by Bloomberg said another trillion yuan of debt earmarked for sale this month may be harder to sell as banks struggle with rolling over outstanding bonds. The report cited analysts warning that the PBoC was likely to slow bond sales in the rest of the year and concentrate on supplying short-term funds to maintain bank liquidity.

This year's increased bond sales have coincided with the ministry’s decision last year to begin 2020 bond sales earlier as a means of easing a slowdown that had begun long before the devastating impact of coronavirus were felt.

Its stimulus had included more than 2tn yuan of fiscal stimulus, including tax and fee cuts to help strengthen a private sector that had begun amassing unwieldy debt.

  • Additional reporting by Reuters  

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