Anhui's local treasury bonds dropped below the issue price with no suspense on April 8, the first day the issue went public, and closed the quota at 99.98 yuan (US$14.63). Its daily yield registered at 1.62 percent.

Anhui's local bonds are not the first to have dropped beneath the issue price. Earlier on April 3, Xinjiang's local bonds also failed to retain their issue price on the day, and continued the sluggish momentum in the following days.

These drops in value of local bonds, an insider suggests, reflect a variance in market demand and supply in line with the public's expectation, signaling a delay for the bond market's readjustment.

"A significant drop in local bonds is inevitable, considering the present market condition," said Chen Liang, research fellow with Guohai Securities Fixed Income Research Center. "In this sluggish market, later bond issues bear a comparatively higher bidding interest rate than earlier issues, leading to a drop in the earlier ones," Chen said. Data from the China Government Securities Depository Trust and Clearing Company shows that since March 27 four local bonds' bidding rates have started to climb in sequence according to release: Xinjiang Bond 1.61 percent, Anhui Bond 1.60 percent, Henan Bond 1.63 percent and Sichuan Bond 1.65 percent.

Research Fellow Wang Changjun with Essence Securities explains that increasing numbers of national bonds and local bonds are being issued in Q2. The scale and volume are filling the market demand: "It is mainly because the supply on the bond market is adequate and the market holds a high expectation for the economy."

Last week, the Ministry of Finance published the Q2 national bond plan, saying that 16 batches of book-entry treasury bonds will be issued during the second quarter of this year, a noticeable quarterly increase. At the same time, the issuing of local bonds is also picking up speed as the first half of April saw 6 bonds enter the market, totaling 28.4 billion yuan (US$4.16 billion).

For more information, please consult the original article in Chinese:

http://news.xinhuanet.com/fortune/2009-04/08/content_11150896.htm

(China.org.cn by Maverick Chen, April 10, 2009)