Chinese local governments issued record amount of bonds in August and September. According to data from Wind Info, new local government bonds issued for special purpose in n September hit a new high, reaching 671.232 billion yuan in the month, exceeding the total of the previous August.
The bond issuance is coming to an end in October. So far, the quota of new local government bonds for 2018 is almost completed. Based on the local government bond primary market in the first half of October, the pace of issuance has slowed significantly. The industry expects that as the pressure on local government bond supply is alleviated, interest rate bonds and credit bonds are expected to pick up. At the same time, the funds raised by local government bonds will gradually flow to projects, and the stimulating effect on infrastructure and other investments will be seen in the fourth quarter.
Demand and supply of local government bonds boom in September
Since the Ministry of Finance called for in August speeding up the issuance of local government special bonds, the issuance of special bonds has been spurred in August and September, and reached a peak in September. Statistics for Wind Info show that new local government bonds issued in September totaled 671.323 billion yuan, an increase of 226.551 billion yuan from the previous month, exceeding the total issuance of 609.043 billion yuan in the first eight months of this year.
As more special bonds issued, local government debts continued to expand. In the third quarter of this year, the total amount of local bond issuance was close to 2.4 trillion yuan, doubling from the previous quarter.
After a fast-paced issuance in August and September, the remaining quota for new special debts is limited. According to the opinions on the issuance of special bonds for local governments" issued by the Ministry of Finance, the goal of issuing at least 80 percent of new special bonds before the end of September this year has also been over fulfilled.
According to the statistics of the fixed income research team of Guosheng Securities, as of September 30, the cumulative amount of new special debts issued by various regions in China has reached 1.22 trillion yuan, and the remaining quota was 13.34 billion yuan, accounting for less than 10 percent of the total quata of the whole year.
According to the opinion, the remaining issuance quota should be mainly completed in October. A number of areas have reached the maximum amount of new debt or special debts of the year, and will not issue new bonds in the year.
The increasing local government bonds were also favored by banks. Besides with high quality, low risk and tax exemption, interest rate of some local government bonds is also quite attractive. According to government instruction,
The boom in primary market also boosted issuance of local government bonds in some less developed regions. The interest rate was also lower, easing pressuring of financing cost.
Bond market performance becomes flat in October
Due to the increasing issuance in August and September, local government bonds led to pressure on rising interest rate and hence caused reduction in investment of non-government sectors. Transaction of national bonds, policy-based financial bonds in secondary market was also impacted. Resulting from multi-factors, interest rate of 10-year national bonds began to move up since August.
The growth of issuance of local government bonds slowed down significantly in October. As of October 14, newly-added issuance of bonds for special purpose were only valued at 10 billion yuan. Excluding the National Day holidays during October 1 and 7, the issuance in single week also declined sharply. With supply pressure relaxing, rate bonds and debenture bonds are expected to enjoy benefits.
However, thanks to the slowing growth in issuance, capitals in bond investment will take effect after being put into place gradually. Qin Han, securities analyst with Guotai Junan Securities, believed that the new bonds for special purposes are mainly linked with local infrastructure project, which will effectively relax the tight capital source of infrastructure, boost long and medium-term loans of banks, and drive infrastructure investment to recover steadily. “As only 43.2 billion yuan of special bonds in local regions were issued in the first half of this year and most of them were issued and used in projects since July, it will begin to take effect on investment in the fourth quarter.”
This will exert adverse influence on the bond market performance in the fourth quarter. Qin considered that finance is the key to the change in fundamental in the second half of the year, and infrastructure project and financing expansion are key leading variables. Local government bonds will stimulate follow-up infrastructure and credit expansion. Investment growth and economic stimulus are expected to pick up from the bottom, boost market risk preference, and curb performance of bond market.
Translated by Coral Zhong & Vanessa Chen
The bond issuance is coming to an end in October. So far, the quota of new local government bonds for 2018 is almost completed. Based on the local government bond primary market in the first half of October, the pace of issuance has slowed significantly. The industry expects that as the pressure on local government bond supply is alleviated, interest rate bonds and credit bonds are expected to pick up. At the same time, the funds raised by local government bonds will gradually flow to projects, and the stimulating effect on infrastructure and other investments will be seen in the fourth quarter.
Demand and supply of local government bonds boom in September
Since the Ministry of Finance called for in August speeding up the issuance of local government special bonds, the issuance of special bonds has been spurred in August and September, and reached a peak in September. Statistics for Wind Info show that new local government bonds issued in September totaled 671.323 billion yuan, an increase of 226.551 billion yuan from the previous month, exceeding the total issuance of 609.043 billion yuan in the first eight months of this year.
As more special bonds issued, local government debts continued to expand. In the third quarter of this year, the total amount of local bond issuance was close to 2.4 trillion yuan, doubling from the previous quarter.
After a fast-paced issuance in August and September, the remaining quota for new special debts is limited. According to the opinions on the issuance of special bonds for local governments" issued by the Ministry of Finance, the goal of issuing at least 80 percent of new special bonds before the end of September this year has also been over fulfilled.
According to the statistics of the fixed income research team of Guosheng Securities, as of September 30, the cumulative amount of new special debts issued by various regions in China has reached 1.22 trillion yuan, and the remaining quota was 13.34 billion yuan, accounting for less than 10 percent of the total quata of the whole year.
According to the opinion, the remaining issuance quota should be mainly completed in October. A number of areas have reached the maximum amount of new debt or special debts of the year, and will not issue new bonds in the year.
The increasing local government bonds were also favored by banks. Besides with high quality, low risk and tax exemption, interest rate of some local government bonds is also quite attractive. According to government instruction,
The boom in primary market also boosted issuance of local government bonds in some less developed regions. The interest rate was also lower, easing pressuring of financing cost.
Bond market performance becomes flat in October
Due to the increasing issuance in August and September, local government bonds led to pressure on rising interest rate and hence caused reduction in investment of non-government sectors. Transaction of national bonds, policy-based financial bonds in secondary market was also impacted. Resulting from multi-factors, interest rate of 10-year national bonds began to move up since August.
The growth of issuance of local government bonds slowed down significantly in October. As of October 14, newly-added issuance of bonds for special purpose were only valued at 10 billion yuan. Excluding the National Day holidays during October 1 and 7, the issuance in single week also declined sharply. With supply pressure relaxing, rate bonds and debenture bonds are expected to enjoy benefits.
However, thanks to the slowing growth in issuance, capitals in bond investment will take effect after being put into place gradually. Qin Han, securities analyst with Guotai Junan Securities, believed that the new bonds for special purposes are mainly linked with local infrastructure project, which will effectively relax the tight capital source of infrastructure, boost long and medium-term loans of banks, and drive infrastructure investment to recover steadily. “As only 43.2 billion yuan of special bonds in local regions were issued in the first half of this year and most of them were issued and used in projects since July, it will begin to take effect on investment in the fourth quarter.”
This will exert adverse influence on the bond market performance in the fourth quarter. Qin considered that finance is the key to the change in fundamental in the second half of the year, and infrastructure project and financing expansion are key leading variables. Local government bonds will stimulate follow-up infrastructure and credit expansion. Investment growth and economic stimulus are expected to pick up from the bottom, boost market risk preference, and curb performance of bond market.
Translated by Coral Zhong & Vanessa Chen
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