SHANFHAI: Support for China’s economy from the central bank has been put at risk by a surge in municipal bond issuance that has driven up yields, undermining its efforts to cut borrowing costs. Heavily indebted local governments seeking to refinance expensive debt have issued more than 600 billion yuan ($96.7 billion) of municipal bonds in the past month — more than in all of 2014. Traders are betting government bond yields will rise rather than fall in coming months on the back of more debt sales, producing a tug-of-war between a People’s Bank of China (PBoC) determined to prop up flagging economic activity and a bond market awash with supply. “The sudden fall in government bond futures really runs against the overall monetary easing trend,” said a senior trader at a major Chinese bank. “It reflects market sentiment that investors are supplied with too much new debt of late, including local government bonds.” Five-year September 2015 government bond futures suffered their worst trading day of the year on May 26. Driving the huge new issuance of municipal bonds is an estimated 22.6 trillion yuan of high interest local government debt, which provinces are struggling to refinance more cheaply. Nomura estimates the municipal bond market will grow 1,000 per cent to 12.1 trillion yuan by 2020 — larger than the size of the entire treasury market now.