Financial Market Performance in October 2008

In October 2008, the interest rates on the monetary market generally performed in a stable manner, and the bond market and stock market fluctuated in both directions. Bond issuance on the inter-bank market climbed from the previous month, among which the issuance of short-term bonds maintained stable while the issuance of long-term bonds increased.

Both the inter-bank funding volumes and bond pledged repo volumes declined from the previous month, and spot trading volumes climbed from September. The inter-bank bond index and exchange T-bond index continued to rise rapidly, and T-bond yield curve declined steeply. Stock indices fluctuated amid a downward trend, and the turnover on the stock market shrank.

1.Bond Issuance[1]

In the first ten months of 2008, a total of 1861.2 billion yuan of bonds was issued on the inter-bank bond market, down 23.4 percent from the same period of the last year. The reason behind the decline of bond issuance was that the Ministry of Finance accumulatively issued 1.55 trillion yuan of special T-bonds in the second half of 2007. The issuance of short-term bonds and asset-backed securities both increased greatly from the same period of the last year and the issuance of medium-term bonds in April maintained stable. In the first ten months of 2008, 520.81 billion yuan of book-entry T-bonds, 803.63 billion yuan of policy financial bonds, 79.7 billion yuan of non-policy financial bonds, 336.65 billion yuan of short-term financing bills, 24.71 billion yuan of asset-backed securities and 95.7 billion yuan of medium-term notes were issued on the inter-bank bond market. As of end-October, bonds in depository[2] registered 9849.24 billion yuan, including 9527.95 billion yuan of inter-bank bonds, accounting for 96.7 percent of the total.

In October, 217.26 billion yuan of bonds were issued on the inter-bank market, up 3.6 percent from September. Among this total, a lot more policy financial bonds and short-term financing bills, asset-backed securities and medium-term bills were issued, and the issuance of book-entry T-bonds and subordinate bonds by commercial banks decreased.

In the first ten months of 2008, medium-term bonds dominated the issuance structure on the inter-bank market, including 515.31 billion yuan of bonds with maturities less than 1 year, accounting for 27.7 percent; 1199.89 billion yuan of bonds with maturities from 1 year to 10 years, accounting for 64.5 percent; and 146 billion yuan of bonds with maturities more than 10 years, accounting for 7.8 percent.

In terms of changes of the maturity structure, in October, the issuance of medium-term bonds remained stable, and more long-term bonds were issued compared with the previous month. Among this total, bonds with maturities less than 1 year accounted for 20.4 percent, bonds with maturities from 1 year to 10 years accounted for 68.6 percent, and bonds with maturities more than 10 years accounted for 11.1 percent.

2.Inter-bank Funding

In the first ten months of 2008, the inter-bank market traded briskly with a turnover of 12.51 trillion yuan, or a year-on-year growth of 68.4 percent. In October, the amount of inter-bank funding registered 1180.17 billion yuan, down 3.0 percent from September. Overnight funding transactions dominated the market with a turnover of 847.16 billion yuan, accounting for 71.8 percent of the total.

In October, the interest rates on the inter-bank funding market decreased generally. The weighted average interest rate stood at 2.70 percent, down 19 basis points from September, but up 38 basis points from January. The weighted average overnight funding rate declined 22 basis points from September, and the weighted average overnight funding rate of 7-day products fell 8 basis points from September.

In general, the overnight funding rate and weighted average overnight funding rate of 7-day products fluctuated amid an overall downward trend. At end-October, the weighted average overnight funding rate stood at 2.30 percent, down 89 basis points from beginning-October, and the weighted average inter-bank funding rate of 7-day products stood at 2.

83 percent, down 79 basis points from beginning-October.

3.Repos

In the first ten months of 2008, the repo market was trading briskly. The turnover of bond pledged repos stood at 44.2 trillion yuan, up 25.7 percent year on year. In October, the turnover of bond pledged repo amounted to 4639.13 billion yuan, down 7.1 percent from September. One-day products dominated the trading structure, posting a turnover of 3253.66 billion yuan, accounting for 70.1 percent of the total bond pledged repos in October.

In October, repo interest rate on the inter-bank market displayed a downward trend. The weighted average interest rate of bond pledged repos stood at 2.68 percent, down 22 basis points from the previous month, or down 13 basis points from January. At end-October, the weighted average interest rate of one-day bond pledged repos closed at 2.30 percent, down 90 basis points from beginning-October; the weighted average interest rate of bond pledged repos closed at 2.80 percent, down 76 basis points from beginning-October.

4.Spot Bond Trading

In the first ten months of 2008, the turnover of spot bond trading on the inter-bank market was 29.8 trillion yuan, posting a year-on-year growth of 153.0 percent. In October, the turnover of spot bond trading on the inter-bank market stood at 3.5 trillion yuan, up 12.3 percent from September.

In the first ten months of 2008, the exchange market T-bond spot trading increased by a large margin and registered an amount of 147.42 billion yuan accumulatively, representing a year-on-year growth of 35.7 percent. In October, the exchange market T-bond spot trading turnover continued to increase rapidly, to 23.47 billion yuan, up 18.3 percent from the previous month.

In the first ten months, the bond market developed in a stable manner. The inter-bank bond index rose in general. In particular, from January to May, the inter-bank bond index crept up slowly; in June, the index decreased notably, down 1.37 percent; in July the index began to edge up; and from August to October, the index surged rapidly and closed at 127.

70 points at end-October, up 11.2 percent from beginning of this year. In the first ten months, exchange market T-bond index continued to accelerate and closed at 118.95 points at end-October, up 2.51 percentage points from the beginning of October.

In October, bond yields and especially medium- and long-term bond yields continued to fall, and the overall bond yields curve shifted downward steeply. With T-bond yields curve on the inter-bank market rate as an example, the yields rates of short- and medium-term T-bonds with maturities less than 10 years decreased by larger margins, generally exceeding 70 basis points.

5.Stock Trading

Since the beginning of 2008, due to various domestic and international factors, the stock market has been sluggish and the stock indices fluctuated amid a downward trend. The Shanghai Stock Exchange Composite Index opened at 5272.81 points at the beginning of 2008 and closed at 1728.79 points at end-October, down 3544.02 points, or 67.2 percent.

In October, the stock indices fluctuated amid a downward trend with a decreased average daily trading volume. The Shanghai Stock Exchange Composite Index opened at 2173.74 points at the beginning of October, and closed at 1728.79 points at the end of the month, down 20.5 percent from the beginning of October. The average daily turnover on the Shanghai Stock Exchange was 36.58 billion yuan, down 6.06 billion yuan from September.

(Sources: China Government Securities Depository Trust and Clearing Co., Ltd, China National Inter-bank Funding Center and the website of Shanghai Stock Exchange)