Weak demand yields smaller supply of Chinese bonds

Market News:

BEIJING (MNI) - Concerns about moves to tightening monetary policy hit China's primary bond market Friday, with the Ministry of Finance unable to sell all of its planned issuance of 91- and 273-day bills.

Traders said that the CNY15 billion offering of 91-day bills attracted bids totaling just CNY14.25 billion while the ministry was only able to sell CNY17.47 billion of the CNY20 billion in 273-day paper that it originally planned to auction.

The results of the auction also came in above expectations, with the 91-day paper selling at 1.2757% versus the 1.2374% quoted on Thursday and the 273-day bills going for 1.5418% versus Thursday's indicated 1.526% yield.

There will be a lot of commentary on the issues today which I will follow. The Chinese ministry took 15% if its planned offering off the table when yields came in too high. The point is that the ministry is not paying 1.54% for money when 1 year US treasuries yield only .75%. Bond buyers have no where to go in the government bond market and will be chasing higher yield corporate bonds.