Future looks bright for China's bond market

Edited and translated by People's Daily Online

Beijing, Nov.4 (People's Daily Online) --The bond market experienced a slight correction last week because of tighter fund flows and profit-taking operations, with a technical correction in the returns on short-maturity bonds. However, the market is universally optimistic about the future trend of bonds and expects this round of recovery to continue.

The SSE T-bond Index closed at 130.36 points on Nov. 2, up 0.05 percent, while the SSE Corporate Bond Index closed at 145.69 points, up 0.02 percent.

The bond market experienced a slight correction last week. The SSE T-bond Index closed at 130.21 points last Friday, a drop of 0.03 percentage points from a week earlier. The weekly transaction value totaled 690 million yuan, with a low transaction volume. The SSE Corporate Bond Index closed at 145.4 points last Friday, a drop of 0.05 percentage points from a week earlier. The weekly transaction value totaled 3.3 billion yuan.

In terms of open market operations, the central bank continued to reduce net money supply last week. The central bank issued 19 billion yuan in one-year central bank bills on Oct. 25 and made 55 billion yuan worth of seven-day positive buy-back operations and 45 billion yuan worth of 28-day positive buy-back operations.

The central bank issued 1 billion yuan in three-month central bank bills with an unchanged interest rate. The central bank reduced money supply by 19 billion yuan through open market operations last week, reclaiming funds for three consecutive weeks.

The central bank issued 10 billion yuan in one-year central bank bills on the open market with an unchanged interest rate of 3.584 percent on Nov. 1, which suspended three weeks of positive buy-back operations. In terms of issuance scale, the amount was lower than that of the previous one by 9 billion yuan.

In the primary market — against the backdrop of a debt market revival and expected reforms to the local debt issuance pattern — the transaction interest rate of the five-year local governmental securities issued on Oct. 24 by the Ministry of Finance of China as an agent decreased greatly to 3.7 percent, and the securities were quite welcomed in the market.

With the favorable policies, the 20 billion yuan railway construction securities issued by the Ministry of Railway of China on Nov.2 were warmly welcomed in the market too. The seven-year securities received subscription of 16.87 times and 20-year securities received subscription of 3.74 times. The transaction interest rate also deceased greatly.

In the secondary market, the repurchase rate continues to rise. According to the latest data published by the China Foreign Exchange Trade System, the one-day fixed repo rate closed at 4.9300 percent on Oct. 28, up 185 standard points compared to that of Oct. 22. The seven-day fixing repo rate closed at 4.8800 percent on Oct. 28, up 142 standard points compared to that of Oct. 22.

Regarding the future trend, many analysts believe that the rising trend of the debt market will still last for a time. Haitong Securities believes that the economic growth rate is expected to adjust in the near futre, and in addition, since the CPI has declined, the capital situation is expected to improve. And therefore, it is quite possible that the rising trend will last. The Harvest Fund also believes that the debt market probably will enter another rising period.