CHINA'S central bank has relaxed its ruling banning state banks from buying Treasury bonds in the primary market, in a bid to promote the sale of a bumper issue, traders say. The relaxation applies to the latest batch of treasuries, worth 123 billion yuan (about HK$114.89 billion), which went on sale yesterday. The sale ends on October 20 . The bond issue accounts for about half of the year's domestic government debt sale of 248.5 billion yuan. If it does not sell well, the government will have trouble financing its budget deficit, which Finance Minister Liu Zhongli yesterday said was likely to rise to 57 billion yuan this year. Analysts said the People's Bank of China (PBOC) did not want to be held accountable for such a scenario and told state banks they could invest in the treasuries if the issue was not fully bought by the public. Shenyin & Wanguo Securities bond trader Chen Yong said: 'We understand that state banks can invest in the latest sale of treasuries if public demand is not strong.' The banks must, however, deposit the treasuries with the PBOC as part of their reserves. Last December, the PBOC ordered state banks to draw down their treasury bond holdings and banned them from buying new issues in the primary market or taking part in the secondary market. The relaxation means banks can step in to bolster sale of the issue, but they still are forbidden from participating in the secondary-bond and bond-repurchase markets. The latest issue comprises three sub-tranches: 25 billion yuan worth of two-year treasuries earning 8.64 per cent interest, 73 billion yuan in three-year treasuries earning 9.18 per cent interest, and 25 billion yuan in five-year treasuries earning 10.17 per cent. All three are sold through the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Construction Bank of China, Communications Bank, and trading centres approved by the ministry of finance. The treasuries will not be listed on stock exchanges, but are available on demand over an extended period. Because they are seen as a direct alternative to savings deposits, they are also known as 'savings bonds'. Analysts said this was the first time the finance ministry had launched such a massive sale of 'savings bonds' over eight months. Shanghai Securities Finance analyst Yao Xinming said: 'The ministry is not taking any chances after the first bond issue for the year did not go down well with the public despite the relatively high interest.' In January, the ministry offered 25.93 billion yuan worth of two-year notes at a yield of 10.68 per cent to the public, but sales were dismal. By selling the second issue over eight months and making it easy for retail investors to invest, the ministry is trying to ensure robust demand. Guotai Securities analyst Luo Xu said: 'We predict that the issue will be snapped up, given the long sale period and possibility of the central bank cutting interest rates.' If a cut does come about, the issue should sell like hot cakes. The interest rates for the three sub-tranches already are higher than those paid on savings deposits of similar maturities, although lower than the yields of existing treasuries traded on the exchanges.