(Yicai) April 15 -- This year’s first batches of Chinese treasury bonds were snapped up by investors when they were issued last week, despite the coupon rates being 25 basis points lower than last year’s bonds, as government debt still proves to be a safe haven for savers fearing more bank interest rate cuts.

Two batches of treasury bonds worth up to CNY22.5 billion (USD3.1 billion) each were issued on April 10, according to the Ministry of Finance. One batch was of three-year bonds with a coupon rate of 2.38 percent, and the other was of five-year bonds with a yield of 2.5 percent. This year's batches were CNY3.5 billion (USD483 milIion) bigger than last year's.

“The mobile phone app for buying government bonds froze within one minute of sales kicking off on April 10 and the quotas were already sold out after I refreshed the app,” said a lady surnamed Huang from southeastern Fujian province. She will try again at the next round of sales on May 10.

The coupon rates of both the three-year and five-year government bonds have slumped 62 basis points in the past year. But they are still higher than the yields on bank savings. The ‘Big Four’ state-owned lenders are offering 2.35 percent for three-year fixed term deposits and between 2 and 2.4 percent for five-year deposits.

The main reason why investors are buying more treasury bonds is due to fears that bank interest rates will continue to tumble, Huang said. Government bonds have a low investment threshold, interest is paid either annually or in one lump sum, and the interest is exempt from income tax, unlike fixed deposits, she added.

Most people who buy treasury bonds are over 50 years old and they are loyal customers, an account manager at a state-owned bank told Yicai. However, in the last six months, a number of 30-year-olds have also started to enquire about buying government bonds.

“The interest rate on deposits will tumble further,” said Xiao Yu, chief fixed-income analyst at Zhongtai Securities. As the net interest margin of half of listed banks is now under 1.8 percent, lenders will be looking for ways to expand their profit margin, either by hiking lending rates or by lowering deposit rates. And the latter seems more likely, he added.

Editor: Kim Taylor