China Bond Connect Registers Record Trading Volumes
Trading through the Bond Connect – the offshore channel used to access the domestic fixed income market – registered record trading volumes in March that totaled nearly $70 billion.
478.2 billion yuan ($67.3 billion) of bonds were traded through the channel according to official data – a 68 percent surge compared to last month. This was based on 5,007 trading tickets, also a record high, up from February’s 3,608.
Whilst foreign investors were attracted to the market in recent years by higher yields and gradual inclusion in global indices, the current environment is understandably downbeat. In addition to reports earlier in the year by global researchers, such as Fitch and Standard & Poor’s, predicting record China defaults in 2020, recent volatility has caused delayed inclusion into J.P. Morgan and FTSE Russell indices.
As of February-end, 814 overseas corporate institutional investors held 2.3 trillion yuan ($320 billion) of bonds but no data was available for March-end.
More Headwinds
Meanwhile, China’s fixed income market continues to face coronavirus headwinds especially in the property sector where some bonds issued by developers have lost 40 percent of par value in just the last month. The country’s sector registered its first default in early March – private developer Macrolink – after it failed to pay interest on a 1 billion yuan ($144 million) 5-year bond.
After relative monetary policy stability relative to central banking peers, the People’s Bank of China resumed easing amidst the reopening of Wuhan where the pandemic first began including a 50 billion yuan ($7.1 billion) liquidity injection.
Concerns About Sustainability
But regardless of the current state of affairs, the country will likely continue opening its domestic market evidenced by a recent raft of new entries across various financial sub-sectors. In addition to realizing a vision for renminbi internationalization, onlookers express concerns about the sustainability of a local financial market dependent on an inefficiently priced shadow banking system.
