China’s local governments issued 428.75 billion yuan in special bonds in the month of August according to the latest data from the Ministry of Finance (MOF).
The figure marks an on-month increase of 319.7 billion yuan, as well as a year-on-year rise of 293.57 billion yuan.
According to the People’s Daily underwriting financial institutions are showing greater enthusiasm for special bonds issued by regional governments around China, although issuance is far from on par with other forms of debt, and there has been no substantive structural change in the bond market.
Beijing called for the accelerated issuance of local government special bonds in August as part of efforts to shore up the economy. Chinese regulators also recently sought to spur the popularity of local government bonds by cancelling the 20% restriction on their purchase by underwriting banks.
In order to reduce the impact of accelerated special bond issuance MOF expanded the vigour of its central treasury cash management operations in August, which reached 220 billion yuan in scope for YoY growth of 46.7% and on-month growth of 25%.
This resulted in a net injection of 100 billion yuan, for YoY growth of 25% and on-month growth of 42.9%.
MOF said that despite the sizeable rise in special bond issuance, August saw a comparatively modest gain in overall issuance of local government debt due to reductions in other forms of issuance.
The ministry further said that bond market liquidity remained ample in general and that short-term rates were on the decline.
In August the average rate for 7 day government bond repos on both the interbank market and the Shanghai Stock Exchange was 2.54%, for declines of 19 and 21 basis points respectively compared to August.
As of the end of August the average rates were 2.72% for the interbank market and 2.6% for the SSE, holding roughly steady with July.