China Bond Futures Drop as Beijing Said to Hasten Muni Sales

(Bloomberg) -- China’s bond futures slid on concern that front-loaded issuance from local authorities next year will increase supply pressure.

The most active contracts on 10-year sovereign debt fell as much as 0.36 percent to the lowest intraday level since Nov. 13, while the yield on similar-maturity China Development Bank bonds surged 6 basis points. Beijing plans to provide local governments with quotas for issuing debt from January, according to people familiar with the matter. Those allocations usually come after the March national legislative meetings.

China Bond Futures Drop as Beijing Said to Hasten Muni Sales

News of the increase in debt supply in early 2019 sent rates higher, as “supply of treasury bonds and local debt at the beginning of the year tends to be relatively low,” said Wu Sijie, a senior trader at China Merchants Bank Co. in Shanghai.

Faced with a slowing economy and a protracted trade dispute with the U.S., China is looking to bolster growth. Quotas for 2019 totaling 1.4 trillion yuan ($203 billion) will be handed out, according to one person, who asked not to be named as the information isn’t public. That’s about two-thirds of the total allocation for 2018, and the full allotment for next year isn’t yet known.

The quotas include general bonds and special government bonds, which are used to finance local infrastructure projects, and are subject to signoff from the National People’s Congress Standing Committee. President Xi Jinping is due to deliver a speech on reform and the economy on Tuesday. China’s leadership will also hold its annual economic policy-setting meeting later in the week.

The yield on 10-year sovereign debt was up 1 basis point at 3.38 percent at the close in Shanghai.

©2018 Bloomberg L.P.