China to Roll Over $90 Billion of Bonds Backing Sovereign Fund

(Bloomberg) -- China’s Ministry of Finance will roll over about $90 billion worth of government bonds coming due next week that were used to help set up the nation’s sovereign wealth fund a decade ago.

The ministry will issue 400 billion yuan ($60 billion) of seven-year notes and 200 billion yuan of 10-year securities on Aug. 29 to “relevant banks” at coupon rates of 3.6 percent and 3.62 percent, respectively, according to statements posted on its website. Bloomberg News reported in July about the plan to roll over the debt used to set up China Investment Corp.

The operations won’t lead to any impact on financial markets or interbank liquidity, according to a statement on the website of the People’s Bank of China, citing Xu Zhong, head of the PBOC’s research bureau. The monetary authority is expected to buy all the bonds from the secondary market on the day of issuance, which won’t affect the balance sheets of either the PBOC or commercial banks, Xu added.

The central bank will at the same time conduct open-market operations for relevant lenders, the finance ministry said. The seven- and 10-year sovereign bond yields were at 3.70 and 3.62 percent, respectively, on Tuesday.

The ministry issued about 1.55 trillion yuan of notes in 2007 and used the proceeds to buy an equivalent amount of foreign-exchange reserves from the central bank to set up China Investment Corp. The 600 billion yuan debt coming due Aug. 29 were sold to Agricultural Bank of China Ltd., and then bought by the PBOC. The indirect maneuver was used because the central bank isn’t allowed to buy government debt directly.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Philip Glamann, Robin Ganguly

With assistance from Helen Sun