China to roll over $90 billion of special treasury bonds

World
Europe

China will roll over 600 billion yuan (90 billion US dollars) of special treasury bonds next Tuesday, which will not affect liquidity in the financial markets and banking sector, said the central bank on Tuesday.

The Ministry of Finance (MOF) will issue 400 billion yuan (60 billion US dollars) of seven-year notes and 200 billion yuan of 10-year bonds with market-based yields in the primary market on August 29, the MOF said in a statement.

On the day of issuance, the People's Bank of China (PBOC) will buy all the special treasury bonds from the secondary market.

VCG Photo

As a result, the operations will not affect the balance sheets of either the PBOC or commercial banks, said Xu Zhong, head of the PBOC’s research bureau.

The MOF issued about 1.55 trillion yuan of treasury notes in 2007 and the proceeds were used to buy an equivalent amount of foreign-exchange reserves from the PBOC in a bid to set up China Investment Corp, a sovereign wealth fund.

China as the second largest economy in the world is opening its big debt market to the world. The recently launched Bond Connect platform will be a game changer.

It is based on the successful Hong Kong-Shanghai, Hong Kong-Shenzhen Stock Connect, which allows foreign investors to buy into local Chinese markets via Hong Kong brokerages.

Qualified buyers can also access the market directly, as always, but the Bond Connect systems make it easier for smaller international investors to own a piece of mainland China without the counter-party risks the previous entry ways offered.

That means foreign fund managers, including retail mutual funds, can tap into the country's nine trillion US dollars government and corporate bond markets without having to set up accounts with Chinese banks.

The seven- and 10-year sovereign bond yields were at 3.70 and 3.62 percent, respectively, on Tuesday, not much less than some speculative grade corporate credit that also comes with higher currency risks. The Chinese renminbi has not witnessed gains or loses more than five percent a year since 2010.