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Investors cold shoulder bonds as yields dip

Chinese economy

A China Construction Bank worker counting renminbi banknotes in Hai'an, Jiangsu province. Falling bond yields have made investors turn to other avenues like commodities and equities.

With prospects of further interest rate cuts on the anvil, investors seem to be shunning bonds in favor of equities and commodities, according to experts.

Adding more credibility to the view has been the nearly 70-percent rise in the A-share market since the beginning of the year and the anticipation of an ensuing inflation activated commodities trading.

On the supply side, China plans to issue around 1.7 trillion yuan ($248.88 billion) treasury bonds for the whole year. Bonds worth 652 billion yuan have been issued in the first half, leaving some 1.1 trillion yuan worth of bonds to be sold in the second half.

"The supply is huge, but demand is obviously very sluggish," Xu Jin, analyst, Shanghai Securities said.

Recently, the Ministry of Finance failed to find buyers for debt worth $1.7 billion as not too many investors showed interest in the auctions.

"With bank interest rates likely to go up in the near future, the allure for treasury bonds may fade," Zhu said.

Investors are growing wary of Chinese debt as the nation's economy is growing faster than expectations. China's gross domestic product grew 7.9 percent in the second quarter, beating the median estimate of 7.8 percent in a Bloomberg survey of eight economists.

Chinese policymakers need to "fine-tune" the policy to prevent asset bubbles, loan defaults and faster inflation, Zhang Jianhua, head of the central bank's research bureau, wrote in China Finance magazine this month.

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 Source : China Daily  Editor: Ivy
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