In the first two months of 2010, the financial market performed in a stable manner. In February, bond issuance on the inter-bank market declined. There was adequate liquidity in the market. Affected by the spring festival vacation and other factors, turnover of inter-bank offering on the inter-bank market and bond repo both fell month on month and interest rates on the money market continued to climb.
The volume of spot trading slid and bond indices continued to grow. The T-bond yield curve flattened. In February, stock indices rallied among fluctuations and the trading volume on the stock market withered.
1. Bond Issuance[1]
In the first two months of 2010, bond issuance on the inter-bank bond market totaled 386.94 billion yuan, up 55.1 percent year on year. In February, bond issuance on the inter-bank bond market decreased 14.7 percent from January to 178.08 billion yuan. At end-February, bonds in depositary amounted to 13.4 trillion yuan[2] , and specifically, bonds in depositary on the inter-bank bond market stood at 13.1 trillion yuan, accounting for 97.8 percent of the total.
In the bond issuance in the first two months in 2010, bonds with a maturity of 5 to 10 years dominated the maturity structure on the inter-bank bond market and the share of long-term bond rose significantly in February.
2. Inter-bank funding
In the first two months of 2010, the performance of the inter-bank funding market was generally stable. In January and February, the turnover on the inter-bank funding market was roughly 3.3 trillion yuan, up 112.9 percent year on year. With the influence of the spring festival and other factors, trading volume on the inter-bank market reached 1.6 trillion yuan approximately, down 10.5 percent from January. One -day products dominated the trading structure, accounting for 84 percent of the month s total.
In February, the weighted average interest rate of inter-bank borrowing rose 36 basis points over January to 1.52 percent. The weighted average interest rate of 7-day products grew by 28 basis points month on month to 1.80 percent.
3. Repos
In the first two months of 2010, trading on the repo market was brisk and the turnover of repo trading was on a rise. In January and February, the turnover of bond pledged repo registered 10.2 trillion yuan, up 11.3 percent year on year. In February, the turnover of bond pledged repo dropped 23.1 percent from January to 4.4 trillion yuan. One-day product still dominated the trading structure, accounting for 75 percent of the total turnover of bond-pledged repo in February.
In February, weighted average repo rates on the inter-bank bond market continued to climb and the weighted average interest rate of bond-pledged repo stood at 1.55 percent, up 36 basis points from January. Weighted average interest rate of 1-day bond-pledged repo registered 1.43 percent, up 30 basis points from January.
4. Spot Bond Trading
In the first two months of 2010, the turnover of spot bond trading on the bond market grew 4.9 percent year on year to 6 trillion yuan. In February, spot bond trading on the inter-bank market plunged due to the spring festival holiday. The turnover dropped 26 percent from January to 2.6 trillion yuan. Spot T-bond trading on the stock exchanges edged up by 3.2 percent compared with January to 15.47 billion yuan in February.
In February, inter-bank bond index and exchange T-bond index continued the upward movement. The inter-bank bond index increased 1.09 basis points or 0.83 percent from 130.99 basis points at the beginning of the month to 132.08 basis points at end-February. Exchange T-bond index rose 1 basis point or 0.81 percent from 122.76 basis points at beginning-February to 123.76 basis points at the end of the month. Since the start of this year, T-bond yield curve on the inter-bank market flattened.
5. Stock Trading
In February, stock indices rallied among fluctuations. The Shanghai Stock Exchange Composite Index grew 110.58 points over end-January to 3051.94 points at end-February. Trading on stock exchanges continued to plummet. The average daily turnover on Shanghai Stock Exchange totaled 96.85 billion yuan, 52.55 billion yuan less from the previous month.
(Sources: China Government Securities Depository Trust and Clearing Co., Ltd, China National Inter-bank Funding Center, and the website of Shanghai Stock Exchange)
[1] Bond issuance refers to RMB bonds issued on the inter-bank market in China (excluding central bank bills).
[2] Excluding deposited central bank bills.
