(Yicai) May 26 -- China’s first 50-year ultra-long-term special treasury bond of the year drew a lukewarm response from investors when it went on sale on May 23, however analysts remain confident about overall liquidity conditions.

The 50-year bond ended up with a weighted average winning interest rate of 2.1 percent, higher than the yield on similar bonds already trading in the market.

The yield on a comparable 50-year special treasury bond, called the “24 special treasury bond 03,” for instance, closed at 2.0175 percent the previous day. The government raised CNY50 billion (USD7 billion), which was the same as the actual issuance. On the same day, the Ministry of Finance also issued 10-year and three-year treasury bonds, both with a scale of CNY170 billion (USD23.7 billion). Their winning interest rates were 1.67 percent and 1.46 percent respectively, around 1 basis point and 3 bps lower than the previous day’s closing prices of bonds with the same maturity.

In general, when bonds are issued at higher yields than what is available on the secondary market, it means that demand is weak. A higher return is used to lure investors, reflecting the market’s lack of enthusiasm to go long.

The interest rate of this year’s 50-year bond was also about 19 basis points higher than the renewed treasury bonds with the same maturity issued in February. Renewed bonds mean that the government is issuing more of an existing bond that is already trading and which has not yet matured. These new bonds have the same code, coupon rate and payment dates as the original ones and are merged with the original after going public.

The bond market is shifting its focus to supply and liquidity pressures, as the market digests the impact of the US’ reciprocal tariffs, analysts said. Even though the central bank recently cut banks’ reserve requirement ratio to ease liquidity, the cost of borrowing has actually gone up, and this will intensify market concerns that monetary policy may not stay loose for long.

On May 23, treasury bond futures dipped then bounced back. The most-traded 30-year contract climbed 0.04 percent to CNY119.60 (USD16.70), and the 10-year main contract also advanced 0.04 percent to CNY108.85.

Early trading was jittery due to supply concerns, but once the auction results landed, there was a notable uptick in sentiment in the afternoon, showing a reversal in the bearish market, according to the analysis of the Fixed Income, Currencies and Commodities team at CZBank.

Strong Support

With the large issuance of bonds, the biggest negative factors in the market have been basically digested, the FICC team said. At the end of May, the fluctuation of funds and the progress of fundamental repair will become the focus of the market, but with favorable monetary policies, the overall bond market remains well supported.

Funding may get a bit tighter this week due to month-end effects and increased government bond payments, CZBank Securities said in its fixed income report. However, given the People’s Bank of China’s readiness to step in when needed, money supply should stay balanced.

While uncertainties around the economy and US-China relations persist, there is little chance of a major liquidity crunch, said Sun Binbin, chief economist and director of the research institute of Caitong Securities. Even if interest rates rise after May 15, the central bank will continue injecting liquidity through reverse repos and the medium-term lending facility, so money supply should remain adequate.

Editor: Kim Taylor