China’s Finance Ministry Falls Short of Target at Bill Auction

(Bloomberg) -- The Chinese government failed to meet a debt sale target for the first time in almost 18 months, with some bids falling short of minimum requirements, according to traders required to bid at the auction.

The Ministry of Finance sold only 9.57 billion yuan ($1.38 billion) of 182-day bills in a planned 10 billion yuan sale Friday, and 10.85 billion yuan of 91-day notes in a planned 12 billion yuan sale, according to a statement from the bond clearing house. The sale amount includes additional sales of bonds after the auction.

The failure comes amid a debt selloff that has surprised investors, with the 10-year sovereign yield plunging the most on record Thursday. The notes are feeling the pressure from a combination of factors, with hawkish Federal Reserve comments adding to the heat from the yuan’s decline and waning money-market liquidity. The People’s Bank of China has steered borrowing costs rates higher, forcing a correction in the highly leveraged market.

“No one has the time or demand to bid for short-end government bonds,” said Guotai Junan Securities Co. bond analyst Xu Hanfei. “Short-term funding is tight, money-market fund redemptions are ongoing, certificate of issuance rates are rising and short-term liquidity hasn’t eased markedly. In addition, sentiment in the bond market is poor. Even demand for short-end bonds is weak.”

The finance ministry in December 2014 published a list of 50 underwriters required to bid at its debt sales, including Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., Bank of China Ltd. and China Construction Bank Corp. The ministry requires bond sale auction bids to be in a range of the average weighted price of bids received.

--With assistance from Jing Zhao To contact Bloomberg News staff for this story: Shuqin Ding in Shanghai at sding28@bloomberg.net, Yuling Yang in Beijing at yyang329@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Robin Ganguly, Gregory Turk

With assistance from Yuling Yang, Shuqin Ding