SHANGHAI: China auctioned on Friday its first ever 50-year government bond at the low end of market expectations, mainly buoyed by demand from insurers and pension funds in the world’s fastest expanding major economy.
The Ministry of Finance sold 20 billion yuan ($2.9 billion) of the super-term bonds at a yield of 4.3 per cent, partly with the aim of adding to the Chinese government’s bond offerings as the longest maturity was previously 30 years.
A Reuters poll on Thursday of 11 traders and analysts at commercial banks, insurers and securities brokerages forecast the yield for the bond would come in around 4.4 per cent, or in a range between 4.3 and 4.5 per cent.
‘The outcome indicates insurance companies and pension funds do have super long-term liabilities on hand, and it is a good decision for the ministry to issue the 50-year bonds,’ said Liu Jinyu, bond analyst at China Merchants Bank in Shenzhen.
As in the United Kingdom, France and other countries who have sought to issue super long-term bonds to meet demand from pension funds, Chinese insurers appear also to be targeted buyers for the 50-year bonds.
China is dismantling its cradle-to-grave, state-run welfare system in reforms kicked off in the late 1970s.
Furthermore, rapidly improving living standards in the world’s third-largest economy herald an aging society in coming decades, thereby creating huge demand from pension funds to balance long-term assets and liabilities.
Surging business in commercial insurance during the reforms created similar demand from insurers such as giants China Life and Ping An Insurance.
Nearly all major insurers sold a large number of super-long policies in their early days of business in the 1980s and 1990s when both they and their clients were not so familiar with the industry, although the ratio of such policies has been dropping in recent years along with the maturing of the domestic sector.
The 50-year bond auction yield was slightly higher than the indicative yield for the nearest comparable government bonds, with a 30-year maturity, at 4.2067 per cent bid on Friday, according to Reuters Reference Rates.
But dealers said such a moderate premium in the 50-year yield against the 30-year yield was more than deserved taking into considerations the maturity and liquidity risks.
‘For certain, the super-long bonds won’t be traded much, so their secondary-market impact will also be limited,’ said a dealer at a major Chinese securities brokerage in Shanghai.
After the auction, the 50-year bonds will be issued between November 30 and December two and begin secondary market trading on December 4, with interests payable twice in a year, according to an earlier statement by the Ministry of Finance last week. —Reuters
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