Banks Pursue Medium, Long-Term Bonds

With affluent liquidity, Chinese banks are pursuing medium- and long-term bonds.

The Export-Import Bank of China on May 5 issued CNY 10 billion five-year financial bonds via competitive bid. The bonds were 2.162 times oversubscribed and then the issuer made an over allotment of CNY 4.82 billion.

China's Ministry of Finance is to issue CNY 26 billion 10-year book-entry treasury bonds on May 6. The interest rates is expected to be 3.02 percent to 3.1 percent, a bit lower than that in the secondary market.

It is the second such bond issued this year. The first one was launched on March 11 at a contractual interest rates of 3.05 percent. Worried about the imminent economic data, investors then pursued the bonds, which caused the contractual interest rates to be lower than the 3.18 percent yield of existing 10-year T-bond in the secondary market.

Liu Jianyan, an analyst at First Capital Securities Co. in Shenzhen, forecasts that the CNY 26 billion T-bond would continue receiving warmer response from investors and traders because of limited supply and relatively low issue frequency.

The affluent liquidity in the Chinese banking system is considered as a key driver to the hot subscription for medium- and long-term bonds. After the People's Bank of China, the central bank, confirmed China would continue implementing moderately loose monetary policy, it is expected that the affluent liquidity would remain intact for a longer period of time. In such context, Chinese banks are urgent to put the liquidity into investment instruments.

Except for the Industrial and Commercial Bank of China (SHSE: 601398; SEHK: 1398), Bank of China (SHSE: 601988; SEHK: 3988), China Construction Bank (SHSE: 601939; SEHK: 0939) and the Agricultural Bank of China each subscribed for over CNY 1 billion Export-Import Bank of China bonds. China Postal Savings Bank ordered for CNY 2.5 billion bonds, the largest among all subscribers.

Securities companies made subscriptions for a total of CNY 3 billion bonds and the remaining nearly 80 percent portion was shared by other banking institutions such as rural commercial banks and rural credit cooperatives.

The Shanghai Stock Exchange T-Bond Index fell 0.01 percent to close at 121.06 on May 5 and daily bond trading was tepid as institutional investors were waiting for the macro economic data for April.

(USD 1 = CNY 6.82)

Source: www.cnstock.com (May 06, 2009)

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