The Asia Securities Industry and Financial Markets Association (ASIFMA) has published an update to its ‘China bond market roadmap’, which was originally published in June 2013.
The document updates the current structure of the government bond market, in particular the two types of government bonds and the two-bond-market structure: the interbank OTC bond market and the exchange bond market.
Since the first version of the report, which expressed how China’s bond markets fell short of international norms, and were failing to realise their potential, ASIFMA now points out some progress the government bond market has made.
The scale of the Chinese government bond market makes it one of the largest in the world – but it also enshrines certain ongoing weaknesses stemming from the lack of liquidity, the lack of sufficiently diversified trading mechanism and the lack of inter-operability of the two-bond-market structure.
At the end of last week, a Chinese government bond auction failed to sell the RMB 28 billion of one year debt that was on offer, only managing to dispose of RMB 20.7 billion. That was the first time that a Chinese government bond auction had fallen short of its target since June 2013.
Since the first edition of ASIFMA’s report, the Chinese government has moved in favour of further liberalising interest rates, and the roadmap cites the discussions at the 80th plenary meeting of the Communist Party of China that took place at the end of 2013.
The update also discusses recent trading of bond futures. Banks are not allowed to trade in that market and the roadmap encourages acceleration of the access of banks to the bond futures market, which it says would help improve liquidity and promote the market’s function.