Market Summary

Yield Movements

Between 31 August and 14 October, the People’s Republic of China’s (PRC) local currency government bond yields rose for nearly all tenors. The rise, however, was marginal, with tenors of longer than 3 months rising between 0.2 and 8.0 basis points (bps). The spread of the 10-year over 2-year tenor rose slightly to 65 bps on 14 October from 59 bps on 31 August. In contrast to other regional markets, the PRC’s yield curve was only marginally changed during the review period, with many other emerging East Asian markets pressured by tightening monetary policy in the United States and throughout the region. In contrast, external pressure on the PRC’s yields was offset by persistent weakness in the domestic economy.

Size and Composition

The local currency bond market in the PRC grew to a size of CNY125.8 trillion (USD17.7 trillion) at the end of September. Growth decelerated to 2.2% quarter-on-quarter (q-o-q) in the third quarter of 2022 from 3.5% q-o-q in the second quarter (Q2) of 2022. Total government bonds outstanding reached CNY81.9 trillion, with growth slowing to 2.8% q-o-q in third quarter of 2022 from 4.3% q-o-q in Q2 2022 as local government bond issuance weakened following the massive issuance spree in previous months in order to meet annual bond quotas. The PRC’s corporate bond market growth moderated to 1.2% q-o-q from 2.0% q-o-q in Q2 2022. Corporate bond issuers remained cautious over domestic market conditions.

Policy, Institutional and Regulatory Developments

In October, the People’s Bank of China raised the ratio for the cross-border borrowing of firms and banks from 1.00 to 1.25. The move will allow companies to issue more foreign debt.