Based on the information released on Shanghai Stock Exchange on May 22, Inner Mongolia released the bidding document on the first government bonds in 2017. Insiders estimate that stocks exchanges will see peaks in the issuing of government bonds under the background of surging issuing rates and more difficulties. More than ten provinces are expected to issue local government bonds this year.
Hebei People’s Government officially completed the bidding for ordinary bonds on Shanghai Stock Exchange in May with a total issuing size of 18.8 billion yuan. It marks the initiation of issuing of local government bonds by stock exchanges in China.
The issuing of local government bonds has been slowing down compared with last year. Based on the statistics of CCXI, a total of 178 local government bonds have been issued with a total amount of 799,414 million yuan as at the end of April 2017. All bonds issued in the first three months are swap bonds and new local government bonds have been issued since April. Currently, 27.6 billion yuan of new local government bonds and 771,815 million yuan of swap bonds have been issued totally.
“The issuing of local government bonds has been slow this year. The issuing size plunged significantly compared with the corresponding period of last year. Only 474.5 billion yuan of local government bonds were issued in the first quarter, representing about half of the issuing size of 955.4 billion yuan in the corresponding period of last year.” Dr. Tang Linmin from the National Academy of Economic Strategy of the Chinese Academy of Social Sciences (CASS) told the Economic Information Daily.
Meanwhile, the issuing rates of local government bonds issued this year are higher than that of 2016. The rates of local government bonds issued in previous months this year also hiked gradually.
Due to the stricter regulation and the pressure on financial de-leveraging, domestic capitals are tight and the liquidity is under pressure, indicated Yang Xiaojing, an analyst from the CCXI. Under such background, the cost of local government bonds continued hiking in April. The average rate of local government bonds was 3.63 percent in April, representing an increase of 8BP from the previous month. “The issuing cost of local government bonds has reached the highest level since their official issuance in 2015. It is a result of the overall capital environment and the shrinking size of local government bonds.”
Tang believed that the hiking rate is related to the increasingly tight monetary policies. Meanwhile, the remaining inventory local government bonds are difficult to swap, which require higher rates on swap bonds. There are two main reasons for the changes in the issuing rates of local government bonds this year. “The hiking rates have negative effects on the willingness of local governments in issuing bonds. They have to consider the cost when issuing local government bonds and will avoid issuing bonds when rates are higher. Banks are also reluctant to invest in local government bonds due to the high capital cost.”
It reflects that the issuing of local government bonds faces more pressures. Yang pointed out that one the one hand it should explore more market-based issuing methods in local government bonds. The issuing of local government bonds on stock exchanges can effectively improve the marketization of local government bonds. On the other hand, most bonds issued on stock exchanges are credit bonds and high-rated interest bonds account for low proportions. It should increase the proportion of high-level bonds, such as local government bonds, to improve the structure of bonds on stock exchanges.
Insiders pointed out that the using of local government bonds on Shanghai Stock Exchange is to expand the channels for the issuing of local government bonds and attract more investors to participate in the investment in local government bonds. It should speed up in the issuing of local government bonds and reduce the issuing cost to release the pressure on the issuing of local government bonds.
Tang also pointed out that the issuing of local government bonds on Shanghai Stock Exchange means expanding the issuing channels and attracting more investors. It means more capitals and competitions, which will help reduce the issuing rates of local government bonds. Local governments can balance various issuing channels. It will help local governments game with their counterparties.
Securities companies will be active in the future. Yang pointed out that stock exchanges have formulated incentive measures to improve the enthusiasm of securities companies. The policy encouragement and high recognition on local government bonds in the market will drive securities companies to underwrite local government bonds. Generally, it is expected that the local government bonds issued on stock exchanges will significantly hike this year.
Translated by Star Zhang
Latest comments