China Development Bank Launches New Liquidity Index for 7-10 Year Bonds

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One of China’s three main policy banks has teamed up with China Securities Index Co., Ltd. (CSI) to launch a new index for the liquidity of its bonds.

The China Development Bank (CDB) and CSI jointly unveiled the “CSI 7 – 10 Year CDB Bond Liquidity Index” (中证7-10年国开债流动性指数), which will officially commence operation on 17 July.

According to CSI the new index makes “innovative use of bond liquidity index calculation weightings, to better reflect the overall performance of high-liquidity CDB bonds of these maturities,” and “possesses key reference value.”

The index makes “full consideration of real transaction conditions on the market to reflect changes in interest rates for CDB bonds of key maturities, and provide a benchmark for comparison of performance.”

“The sample bonds are highly liquid, and easy to track, reducing transaction costs and tracking errors.

“In future following the launch of cross-market bond ETF products, products tracking this index will be able to satisfy the allocation needs of both domestic and foreign investors with regard to domestic bond transactions.”

A spokesperson from CDB said that its bonds had already become the biggest on the Chinese market in terms of annual transaction volumes and activity levels, with the 10 year CDB bond holding first place on the market in terms of liquidity over the long-haul, and its yield curve emerging as a key benchmark.

As of the end of June CDB had issued over 20 trillion yuan in bonds in total, with an outstanding bond balance of 9.8 trillion yuan.

CDB engaged in the first “market-based issuance” of 5 billion yuan in financial bonds in September 1998 by means of public auction, and has since emerged as China’s second largest bond-issuing entity.

CDB said that the next step will be to “continue to employ the innovative guidance role of developmental finance, assist bond market reform and opening, and use first-grade fund operations to provide efficient services to development of the real economy.”

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