China Spending Push Buoys Debt Sales, Calls for New Liquidity (Bloomberg)
Bloomberg Aug 23, 2018
China’s return to large infrastructure spending is triggering a flood of new local government bonds, something analysts say will force the central bank’s hand to inject more liquidity to meet the higher debt supply.
The government in China is encouraging local authorities to ramp up funding to boost building projects, a change from the push in the recent years to rein in debt-fueled growth. The increase is already showing up in the data and analysts reckon the supply of local debt in August and September will mark a fresh high for issuance.
While policy makers have tried to ease credit markets since July to revive a slowing economy in the midst of the trade war with the U.S., concerns remain that any surge in the supply of local government bonds may siphon funds away from the inter-bank market and trigger liquidity injections from the nation’s monetary policy makers.
“The central bank is expected to inject more funding to the market via granting medium-term lending facility and conducting more open market operations in August and September to maintain ample liquidity,” said Qin Han, a fixed income analyst at Guotai Junan Securities Co. in Shanghai. Bond yields have already risen in recent weeks due to the expected surge in local government bond issues, he said.