Market Summary

Yield Movements

Between 31 August and 15 October, the People’s Republic  of China’s (PRC) yield curve shifted slightly downward by an average of 2.3 basis points (bps), largely due to the weakening of the economy as well as reserve requirement ratio reductions by the People's Bank of China (PBOC). The average downward shift in the yield curve was relatively smaller this period due to volatility to events such as a higher liquidity requirements in anticipation of the long holiday in the first week of October. 

Size and Composition

The PRC’s local currency (LCY) bonds outstanding rose 5.7% quarter-on-quarter (q-o-q) and 15.5% year-on-year (y-o-y) to  reach CNY63.2 trillion (USD9.2 trillion). The PRC’s bond market q-o-q growth rate quickened from the previous  quarter’s 3.8% expansion. The PRC’s government bond mark grew 6.3% q-o-q in the third quarter (Q3) of 2018 after expanding 4.4% q-o-q in the second quarter (Q2) of 2018. The faster growth rate was driven by the rapid increase in Treasury bonds and other government bonds which grew 8.7% q-o-q in Q3 2018, up from 5.1% q-o-q  the previous quarter due to increased issuance of local government bonds, which grew 12.5% q-o-q in  Q3 2018 compared with 6.9% q-o-q in Q2 2018. The PRC’s corporate bonds outstanding  grew 4.1% q-o-q in Q3 2018, up from Q2 2018’s growth  of 2.1% q-o-q. 

Policy, Institutional and Regulatory Developments

On 7 October, the PBOC reduced the reserve  requirement ratio of large commercial banks, joint stock  commercial banks, city commercial banks, non-country rural commercial banks, and foreign-funded commercial  banks by 100 bps. In addition, the PBOC announced that maturing funds from its Medium-Term Lending Facility for that day would not be renewed, effectively using some funds freed by the reserve requirement ratio cut to repay the lending facility. The PBOC said that the net effect  would be a release of CNY750 billion of funds into the banking system.