Fiscal policy will set the tone for next year
Fiscal policy will set the tone for next year
08:41, November 25, 2009 
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China's 50-year treasury bond signals that the government will most likely to resort to fiscal policies rather than monetary policies to fend off possible inflation next year, experts said Tuesday.
The Ministry of Finance (MOF) will issue 50-year bonds worth 20 billion yuan ($2.93 billion), the longest of its kind ever issued in China, via the inter-bank bond market and stock exchanges from November 30 to December 2, according a statement posted on MOF's website November 20.
The bonds target financial institutions such as commercial banks, insurance and securities companies rather than individual investors, said Zhang Youxian, an analyst at the Bank of China's Institute of International Finance.
The issuance is intended to ease the fiscal pressure following the 4 trillion yuan ($585.6 billion) stimulus package, according to Ding Jianping, a financial professor at Shanghai University of Finance & Economics.
"China, like many other countries, is facing the problem of how to exit from its stimulus next year and needs to come up with a strategy to keep the economy stable. Issuing government bonds is a measure to curb excessive liquidity and prevent inflation,"Ding said.
Though the issued amount is only about 2 percent of the government debt issued this year, "it is a sign that the government will mainly use fiscal policies via bond issuance and tax collection to fine tune the economy, rather than use of monetary policy,"he remarked.
"The issuance of 50-year bonds shows progress in the Chinese bond market,"Zhang said.
Since 1981, China has issued various government debts with maturities ranging from days to 30 years. The issuance of bonds with more than 10-year maturities is rare.
The MOF will hold a meeting Friday to fix the coupon rate of the bond. The interest will be paid bi-annually based on the coupon rate, MOF said.
The coupon rate of the 50- year bonds will be close to that of 30-year's as both of them cover several economic cycles, predicted Lu Zhengwei, chief economist of Industrial Bank.
The coupon rate will be set at the weighted average rate of all bids Friday, said the MOF.
The coupon rate of the 30- year bond issued in October is 4.18 percent. The coupon rate will be somewhere around 4.4 to 4.45 percent, estimated Qu Qing, an analyst at Shenyin & Wanguo Securities Research, reported by Shanghai Securities News (SSN).
But not all investors are gung-ho about the landmark bond issuance.
An investment manager from a life insurance company told SSN that he is not interested in the bonds as he expects a low yield.
The banks and insurance companies may lack the enthusiasm to buy, as 50-year bonds have less liquidity than short- and mid-term products. Currently banks and insurance companies are more willing to pursue higher-yield products when the economy is recovering, said Zhang at Bank of China.
Investors would have been willing to buy long-term fixed rate bonds during the crisis when they are pursuing stability and safety rather than profitability, he noted.
The MOF might have already talked with the banks, insurance companies or securities company to ensure that the coupon rate would be acceptable, Zhang said.
Source: Global Times
The Ministry of Finance (MOF) will issue 50-year bonds worth 20 billion yuan ($2.93 billion), the longest of its kind ever issued in China, via the inter-bank bond market and stock exchanges from November 30 to December 2, according a statement posted on MOF's website November 20.
The bonds target financial institutions such as commercial banks, insurance and securities companies rather than individual investors, said Zhang Youxian, an analyst at the Bank of China's Institute of International Finance.
The issuance is intended to ease the fiscal pressure following the 4 trillion yuan ($585.6 billion) stimulus package, according to Ding Jianping, a financial professor at Shanghai University of Finance & Economics.
"China, like many other countries, is facing the problem of how to exit from its stimulus next year and needs to come up with a strategy to keep the economy stable. Issuing government bonds is a measure to curb excessive liquidity and prevent inflation,"Ding said.
Though the issued amount is only about 2 percent of the government debt issued this year, "it is a sign that the government will mainly use fiscal policies via bond issuance and tax collection to fine tune the economy, rather than use of monetary policy,"he remarked.
"The issuance of 50-year bonds shows progress in the Chinese bond market,"Zhang said.
Since 1981, China has issued various government debts with maturities ranging from days to 30 years. The issuance of bonds with more than 10-year maturities is rare.
The MOF will hold a meeting Friday to fix the coupon rate of the bond. The interest will be paid bi-annually based on the coupon rate, MOF said.
The coupon rate of the 50- year bonds will be close to that of 30-year's as both of them cover several economic cycles, predicted Lu Zhengwei, chief economist of Industrial Bank.
The coupon rate will be set at the weighted average rate of all bids Friday, said the MOF.
The coupon rate of the 30- year bond issued in October is 4.18 percent. The coupon rate will be somewhere around 4.4 to 4.45 percent, estimated Qu Qing, an analyst at Shenyin & Wanguo Securities Research, reported by Shanghai Securities News (SSN).
But not all investors are gung-ho about the landmark bond issuance.
An investment manager from a life insurance company told SSN that he is not interested in the bonds as he expects a low yield.
The banks and insurance companies may lack the enthusiasm to buy, as 50-year bonds have less liquidity than short- and mid-term products. Currently banks and insurance companies are more willing to pursue higher-yield products when the economy is recovering, said Zhang at Bank of China.
Investors would have been willing to buy long-term fixed rate bonds during the crisis when they are pursuing stability and safety rather than profitability, he noted.
The MOF might have already talked with the banks, insurance companies or securities company to ensure that the coupon rate would be acceptable, Zhang said.
Source: Global Times
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