(Bloomberg) -- China kicked off issuance of this year’s special sovereign bonds with a 30-year auction that drew demand of 3.9 times the amount on offer.

Forty billion yuan ($5.5 billion) of special sovereign bonds were sold at an average yield of 2.57%, versus a median forecast of 2.55% in a Bloomberg survey Thursday, according to traders who declined to be named as they were not authorized to speak publicly. Four auctions of regular 30-year bonds this year have seen demand of about 4 times the 28 billion yuan offered on average.

Investors were expecting solid demand at the auction, despite recent headwinds against long-term bonds including fears of oversupply and central bank warnings that yields were too low. Expectations of further monetary easing and a shortage of investible assets amid a gloomy economic outlook were seen supporting the appetite of local buyers.

“The bond sales benefited from the recent cheapening in the bond and the fact that it represents a small portion of the total supply of ultra-long end special bonds as auctions are paced out,” said Frances Cheung, a strategist at Oversea-Chinese Banking Corp in Singapore. Still, she expects longer-dated yields to climb relative to shorter-maturity ones as “after all, a slew of supply is coming in the months ahead.”


The special bonds are part of government efforts to revive an economy afflicted with a property downturn and poor business confidence this year — and to ensure an ambitious annual growth target of about 5% is met. Data Friday highlighted the lopsided nature of China’s recovery — consumer spending growth unexpectedly slowed in April while industrial production accelerated.

The Finance Ministry released its plan on Monday to sell the approved 1 trillion yuan of ultra-long special debt over a time span of about six months through November, a pace seen as moderate. It’s only the fourth time in 26 years that China has turned to this type of debt for fiscal stimulus, which allows it to target spending.

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Thirty-year yields had edged higher earlier Friday after a warning of sorts from central bank-backed newspaper Financial News in a front-page report. The reasonable range of long-term yields is likely to be 2.5% to 3% from the perspective of “the normal operation of the market in recent years” and moves are expected to match long-term growth expectations of the domestic economy, it said, citing analysts.

China’s regular 30-year yield edged higher to around 2.58% after the special bond sale.

The auction comes amid signs that leaders are prioritizing efforts to end the property market slump that’s weighing on the economy. China’s finance and housing market regulators are also set to hold a press conference Friday afternoon regarding measures to address the downturn.

--With assistance from Iris Ouyang.

(Updates with comment)

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