Market Summary

Yield Movements

The People's Republic of China's (PRC) yield curve for local currency (LCY) bonds steepened between 28 February and 15 May, driven by much larger decrease in yields at the shorter-end of the curve. Yields in the PRC fell largely over the ongoing economic impact of the coronavirus disease (COVID-19), which has curtailed both consumer demand and manufacturing supply. In addition, the global impact of COVID-19 negatively affected PRC exports. This led to the PRC's gross domestic product declining 6.8% year-on-year (y-o-y) in the first quarter (Q1) of 2020 after 6.0% y-o-y growth in the previous quarter.

Size and Composition

The PRC's outstanding LCY bonds climbed 4.9% quarter-on-quarter (q-o-q) and 16.1% y-o-y in Q1 2020 to reach CNY88.3 trillion (USD12.4 trillion) at the end of March. The growth of government bonds outstanding in the PRC accelerated to 3.5% q-o-q in Q1 2020 after a 2.0% q-o-q growth in the previous quarter. Growth was largely driven by an increase in local government bond issuance. Growth in the PRC's corporate bond market accelerated in Q1 2020 to 7.3% q-o-q from 4.1% q-o-q in the fourth quarter of 2019. The rise in corporate bonds was helped in part by regulations issued in March simplifying the issuance process for listed corporate bonds and enterprise bonds.

Policy, Institutional and Regulatory Developments

In March, the National Development and Reform Commission launched a registration-based system for the public issuance of enterprise and corporate bonds to replace the previous approval-based corporate and enterprise bond issuance system. Starting 1 March, the National Development and Reform Commission began registering the issuance of enterprise bonds if the firms' average distributable profits over the last 3 years were enough to cover 1 year of interest. The new system was expected to reduce the issuance period of enterprise bonds to 2 weeks from 2-6 months.