Shanghai issued China's first ever local government bonds on Tuesday as part of the country's pilot project to contain the debt risks of financially-challenged local governments.

The government will sell three-year fixed-rate bonds worth 3.6 billion yuan (567 million U.S. dollars) at a yield of 3.1 percent and five-year fixed-rate bonds worth 3.5 billion yuan at 3.3 percent.

The three-year municipal bonds were 3.5 times subscribed while the five-year bonds were 3.1 times subscribed, driven by strong investment demand.

China’s Ministry of Finance said late October that the State Council had allowed the cities of Shanghai and Shenzhen and the provinces of Zhejiang and Guangdong to issue bonds on a trial basis this year as authorities explore ways to solve local government's debt issues.

Local government debt totaled about 10.7 trillion yuan at the end of last year, accounting for about 27 percent of China's gross domestic output in 2010, according to the country's auditing agency.

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