(Bloomberg) -- China’s issuance of local government bonds in May reached the most in seven months, a sign that authorities are ramping up fiscal stimulus to support the economy. 

The tally for the month so far stands at 790 billion yuan ($109 billion), according to data compiled by Bloomberg. May’s figure has been boosted by 391 billion yuan in sales planned for this week, the data show.  

The pick up in local debt issuance, on top of the ultra-long special government bond sale, shows Beijing’s determination to add fuel to the economy. The latest data support the case for more policy action, with a broader measure of credit shrinking for the first time in April and the property market remaining in a dire state.

“As economic growth numbers will likely decelerate, local governments will need to make up for the shortfall of bond issuance in the first quarter and help the economy,” said Gary Ng, senior economist at Natixis. The weak credit data was likely one of the catalysts, he said. 

Fiscal spending is seen as crucial for China to meet its ambitious growth target of around 5% this year. Local authorities have been tasked with buying unsold homes as the government becomes increasingly concerned about the sector’s drag on economic growth.

The hike in bond supply, however, may increase volatility in the government debt market. 

Though bond yields steadily declined this year through April amid expectations of monetary easing and a dim economic outlook, they have since seen wild swings as authorities heightened scrutiny on banks’ investments. 

“The market is closely monitoring if the acceleration in government bond issuance is sustainable,” said Qi Sheng, chief fixed-income analyst at Orient Securities Co. “The bond market may face a stress test if such a pace is maintained in June.”

©2024 Bloomberg L.P.