Something odd happened in China today – the government wanted to sell $4.09 billion of debt securities but couldn’t find enough buyers. So, it settled on selling $4.03 billion. It’s not a huge failure – it sold 98.5% of what it had planned – but the development is an interesting one, especially if it is repeated Thursday when three-month bills are slated for sale.
The word out of Shanghai earlier was that investors were concerned that the one-year bills with a coupon of 1.06% didn’t offer enough yield for those worried about inflation. That may be true but China has reported four straight months of a decline in its consumer price index, a barometer used to measure inflationary pressures.
Another explanation for the failed auction was investors may be holding back funds so they can buy shares in the upcoming Sichuan Expressway initial public offering in China (Sichuan Expressway already trades in Hong Kong). But that doesn’t make total sense as the offering is expected to raise up to $300 million, an amount that doesn’t seem possible to sap too much demand from the bill auction.
Some suggest the ministry of finance may have let the auction fail to send a message to the markets – it’s okay to send rates higher because it wants to cool corporate borrowing and keep the lid on inflation.
Stay tuned for the Thursday bill sale.