China’s 400 billion special government bonds are different this time

The Ministry of Finance will launch the issuance of special treasury bonds due in 2024 on August 29, with a total scale of 400 billion yuan.

What is the background of the special treasury bonds issued this time? What impact will it have on the market? Can individual investors buy it?

What is the basic situation of the special treasury bonds issued this time?

The Ministry of Finance plans to issue special treasury bonds due in 2024 (Phase I) and (Phase II) on August 29 (hereinafter referred to as the first phase and the second phase, collectively referred to as the two phases of treasury bonds). The first phase is a 10-year fixed-rate interest-bearing bond, and the second phase is a 15-year fixed-rate interest-bearing bond; the first phase has a face value of 300 billion yuan, and the second phase has a face value of 100 billion yuan.

In terms of the repayment date of principal and interest, both treasury bonds will start to accrue interest on August 29, 2024, and interest will be paid every six months, with the payment dates being February 28 (holidays will be postponed, the same below) and August 29 each year; the first phase will repay the principal and pay the last interest on August 29, 2034, and the second phase will repay the principal and pay the last interest on August 29, 2039.

What is the background of this issuance?

According to the relevant person in charge of the Ministry of Finance, in 2007, with the consent of the State Council and the approval of the Standing Committee of the National People’s Congress, the Ministry of Finance issued 1.55 trillion yuan of special treasury bonds as the capital source of China Investment Corporation. The terms are mainly 10 years and 15 years, and they will expire successively from 2017. When some of the above special treasury bonds expire in 2017 and 2022, the Ministry of Finance will issue special treasury bonds to relevant banks for repayment.

The above-mentioned person in charge said that for the 400 billion yuan special treasury bonds that will expire on August 29, 2024, the Ministry of Finance will continue the practice of previous years and continue to adopt a rolling issuance method to issue special treasury bonds due in 2024 to relevant banks and other institutions, and the funds raised will be used to repay the principal due that month.

What are the characteristics of this issue of treasury bonds in terms of issuance method?

In terms of issuance method, the two treasury bonds will be issued to relevant domestic banks in the national interbank bond market, and the People’s Bank of China will conduct open market operations for relevant banks.

In terms of face rate, the face rate of the two treasury bonds is the arithmetic average of the yields of treasury bonds of the same term in the Chinese treasury bond yield curve one to five working days (including the first and fifth working days) before the issuance date (rounded to 0.01%).

In December 2022, 750 billion yuan of the 2007 special treasury bonds will mature. On December 12, 2022, the 2022 special treasury bonds were issued to relevant domestic banks in the national interbank bond market with a term of 3 years, an actual issuance of 750 billion yuan, and a coupon rate of 2.48%.

After the Ministry of Finance announced the results of the 2022 special treasury bond issuance, the People’s Bank of China immediately disclosed on its official website that on December 12, 2022, the People’s Bank of China conducted a buyout transaction of open market business spot bonds by quantitative bidding, and bought 750 billion yuan of special treasury bonds from primary dealers in the open market.

Can individual investors buy this special treasury bond? What is the impact on the fiscal deficit?

The above-mentioned person in charge introduced that the issuance process of this special treasury bond does not involve social investors, and individual investors cannot buy it. The special treasury bonds due in 2024 are equal rolling issuances of the original special treasury bonds, which still correspond to the original assets and liabilities and do not increase the fiscal deficit.