A LOCAL government financing vehicle in the city of Hangzhou has sold a 20-year yuan bond, marking a rare investor return to long-dated notes and continued resilience in the heavily indebted sector.

Hangzhou Municipal Construction Investment Group from the Zhejiang province priced a 300 million yuan (S$55.6 million) 20-year note at 3 per cent, according to a filing on Thursday (Mar 14) in the China Foreign Exchange Trade System.

The subscription ratio – the total yuan amount of bids received to bids accepted – was 3.57, according to people familiar with the matter.

Long-maturity LGFV bonds are hard to find, as supply matches what had been lacklustre demand from investors sceptical about how the state-controlled entities would dig out from their massive debt – estimated to be as much as 66 trillion yuan debt. That Hangzhou’s LGFV found buyers underscores that pockets of demand are out there from buyers who believe that Beijing and local governments will do all they can to avoid a first public default.

The company didn’t immediately reply to a request on Thursday from Bloomberg News.

Hangzhou Municipal Construction is only the second LGFV issuer for 20-year notes since September 2021. But signs are emerging that investors are starting to get more comfortable with taking on longer-term risk. The average tenor of LGFV bonds sold in March extended to 3.28 years – its fifth consecutive month of increase and also the longest since September 2021, according to Bloomberg-compiled data.

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Credit traders’ optimism also is more broadly reflected in their rush to LGFV bonds, following a string of measures from local and central governments to refinance, sell assets and clean up bad debt.

Beijing has undertaken nationwide inspections to better assess how much provincial and city governments owe. China also introduced a programme that allows local governments to raise about one trillion yuan via bond sales to repay off-balance sheet debts incurred by LGFVs and other state-owned entities.

Their average coupon hit a record low of 2.76 per cent this month, according to Bloomberg-compiled data.

The figures are calculated based on a list of onshore LGFV bond issuers from a previous Chinabond index – meaning some figures from 2022 onward aren’t included. BLOOMBERG