Researches & Commentaries

Weekly Report of China Bond Market (Dec 16 - 20)

Abstract

Economic Update
-The Federal Reserve announced that it would start to cut bond buying from January 2014, trimming its monthly bond purchase to $75 billion from $85 billion.
-We expect the current impact of the Federal Reserve’s tapering on the money market of China is limited and significant capital outflow is unlikely due to China’s capital account control and the degree of tapering.

Open market operations
-Last week, money-market rates reached their highest level since the credit crunch in June 2013. Seasonal reserve requirements, Federal Reserve’s tapering and the suspension of reverse purchase operations by the People’s Bank of China (PBOC) all contributed to the spikes in money-market rates.
-The PBOC pumped 3 trillion RMB into the banking system through short-term liquidity operations (SLO) to provide liquidity and calm the market.
-We expected  the credit crunch in June was unlikely to be repeated as the central bank had enough instruments to control liquidity. Banks in China also improved their ability to manage cash flow after the credit crunch.

Issuing amount
-Last week, the primary market bonds issuance volume continued to decline. Except for short-term notes, other types of issues all fell compared with the previous week's level.
-The low issuance amount of enterprise bonds was primarily due to the lack of large-scale government backed enterprise bonds issuance.
-The issuing amounts were : CNY 2.98 billion medium term notes, CNY 8.95 billion enterprise bonds and CNY 16.65 billion short-term notes. There was no corporate bond issue during the week. Total issue amount of these four types of issues was 25.67% lower than last week.

Secondary market bonds yield
-Last week, the yield from secondary market bonds generally went up due to pressures in the money market. The secondary market bonds yield continued to climb but at a slower pace than last week. The ten-year Treasury bond yield went up by 4.6% compared with the previous week's level.
-As the PBOC continued its pro-tight stance in managing liquidity, we expected that the secondary market yield would remain at a higher level

Full Report (Chinese only)
http://www.ccxi.com.cn/306d/3934/RedirectDown.html