Market Summary

Yield Movements

Between 1 June and 31 August, local currency (LCY) government bond yields in the People’s Republic of China (PRC) declined for most maturities after a series of interest rate cuts intended to spur economic growth. The People’s Bank of China (PBOC) reduced the 7-day reverse repo rate by 10 basis points (bps) to 1.90% on 13 June, which was followed by a 10 bps reduction of the 1-year medium-term lending facility rate to 2.65% on 15 June. On 20 June, the PBOC reduced the 1-year loan prime rate and the 5-year loan prime rate by 10 bps each to 3.55% and 4.20%, respectively. On 15 August, the PBOC reduced again the 1-year medium-term lending rate by 15 bps to 2.50% and the 7-day reverse repo rate by 10 bps to 1.80%. It also reduced by 10 bps the 1-year loan prime rate to 3.45% on 21 August.

Local Currency Bond Market Size and Issuance

The PRC’s LCY bonds outstanding grew at a slightly slower pace as the government maintained its issuance levels in the second quarter of 2023 to provide economic support. LCY bonds outstanding in the PRC grew 2.0% quarter-on-quarter (q-o-q) to CNY132.9 trillion at the end of the second quarter of 2023. Government bonds outstanding grew 2.4% q-o-q to CNY87.9 trillion, with growth largely driven by local government bonds as local governments continued to issue to meet their targeted bond quotas by the end of the third quarter of 2023. Corporate bonds outstanding grew 1.2% q-o-q to CNY44.9 trillion.

Policy and Regulatory Developments

On 20 July, the People’s Bank of China, together withthe State Administration of Foreign Exchange, raised the macroprudential adjustment parameter from 1.25 to 1.50 for cross-border financing. The macroprudential adjustment parameter forms part of the calculation that determines the maximum amount of cross-border financing that enterprises and financial institutions can have outstanding.