Market Summary
Yield Movements

Between 1 June and 15 August, the People's Republic of China’s (PRC) yield curve rose at the longer-end and declined at the shorter-end. Yields rose between 5 basis points (bps) and 10 bps for tenors of 9 years or longer. In contrast, yields for tenors of 3 years or less fell between 11–16 bps during the review period, while tenors between 4 years and 7 years fell 3–7 bps. The yield movements during the review period reflect a correction of the inverted yield curve that occurred in May, which was a result of the tightening liquidity situation in the PRC driven by deleveraging.

Size and Composition

Local currency bonds outstanding expanded 4.1% quarter-on quarter (q-o-q) and 12.9% year-on-year in the second quarter (Q2) of 2017 to reach CNY51.9 trillion at the end of June. The pace of growth quickened from the first quarter (Q1) of 2017’s 0.8% q-o-q. Growth in the PRC’s bond market was driven by increases in the government bond segment. Government bonds outstanding increased 5.8% q-o-q in Q2 2017, up from 1.6% q-o-q growth in the previous quarter, mainly led by local government bonds outstanding. Corporate bonds outstanding continued to decline in Q2 2017, albeit at a slower pace, falling 0.1% q-o-q in Q2 2017 to CNY14.8 trillion following a 1.2% q-o-q decline in Q1 2017.

Policy, Institutional and Regulatory Developments

In July, the PRC issued regulations that require investors in securities to be classified as either professional or ordinary investors based on asset size, earnings, and investment experience. To be classified as professional, investors must have assets of at least CNY5 million or yearly income of at least CNY500,000. They must also have at least 2 years of investment experience. The rule does not prevent ordinary investors from purchasing riskier products, rather they must be informed about the riskiness of the investment if they seek to purchase assets deemed to be above their risk level.