China finance ministry fails to fully sell 6-month bills

SHANGHAI: China's Ministry of Finance auctioned 15 billion yuan on Friday, at a yield of 3.7037 percent, much higher than yields in the secondary market, but it sold only about four-fifths of the amount on offer due to tight liquidity and technical reasons.

The issue was more than twice subscribed but some bids went beyond the stipulated valid yield limit and were thus not allocated to the bidders, dealers said.

Market players had expected a higher yield after China raised interest rates on Wednesday, the third time it has done so this year.

According to rules, dealers will not qualify for the tender if their bid yield is 12 bps higher than the yield set by the finance ministry.

"This is a typical technical reason for the bill failing to fully sell," said a dealer at a Chinese bank in Beijing.

The ministry auctioned 15 billion yuan but only sold 11.76 billion yuan of the bills.

Failure to fully sell the bills also reflects tight liquidity conditions in the market. The benchmark seven-day repo rate jumped around 64 bps to 6.2394 percent by midday on Friday from 5.6017 percent at the close on Thursday.

The auction yield came in above Thursday's indicative secondary market bid yield of 3.5484 percent for six-month government bills.

The finance ministry also failed to full sell a one-year bill on offer in mid-June due to tight liquidity.

Copyright Reuters, 2011