• In early March the National People's Congress allocated a total of CNY11.86 trillion of new government borrowings, an increase of CNY2.9trillion.
• The borrowing schedule plans for CNY1.3tn of ultra long dated bonds, CNY500 billion of treasuries ear marked to replenish bank capital and a quota for special bonds of CNY4.4 trillion for project backed local government finance.
• Even before the increase in quota, the issuance schedule was significant with new government-bond issuance in the first two months of the year reaching a total of CNY2.4 trillion, up 167% from a year ago.
• Yet despite this, the yield curve has flattened.
• Whilst this week’s announcement on measures to support consumption may have been less explicit than expected in the context of the bond market and funding, there was one important part of the release.
• It was stated that the PBOC is to “study creating new tools to increase-low cost funding for important consumption eras.” The areas likely to be of focus from the PBOC are not obviously ‘new tools’ suggesting their current use will be altered.
• The PBOC’s Head of Credit Policy indicated that the PBOC will utilize a ‘mix of tools such as the Reserve Requirement Ratio (“RRR”), relending and rediscount facilities and open market operations to maintain ample liquidity.”
• A focus on liquidity has a stabilizing effect on bond markets as a portion of liquidity injected, naturally finds its way into the bond market.
• Additional long-term support for bonds can be found when pouring over the asset allocation of the National Social Security Fund (“NSSF”).
• The NSSF has more than doubled its allocation to government securities over the last five years, a change likely followed by other leading pension funds. It is likely that this is one of the contributing factors to the decline of volatility in the China Government Bond Market and begs the question how do global investors think about China Government bonds moving forward?