The People's Bank of China--News

Financial Market Performance in February 2008

From January through February, the financial market operated steadily as a whole. Bond issuance in the inter-bank market increased significantly y-o-y, with medium -term bonds dominating the maturity structure in February. The money market had sufficient liquidity, witnessed decreased transactions volumes of inter-bank lending and repo by varying margins, and experienced interest rates hikes due to the Spring Festival. Spot trading remained brisk but the trading volume decreased somewhat from the previous month; inter-bank bond index and exchange T-bond index edged up, while the T-bond yield curve moved downward on its entirety. Stock market index tumbled further, and the turnover declined greatly.

1. Bond Issuance

(1) Issuance volume fairly increased

From January and February, bond issuance volume increased considerably, posting a y-o-y growth of 196.79 percent, with the accumulative bond issuance in the inter-bank bond market amounting to 311.298 billion yuan. In particular, book-entry T-bonds issued by 56.97 billion yuan, policy financial bonds 195.45 billion yuan and short-term financing bills 54.12 billion yuan. As of end-February, bond depository balance amounted to 12.83 trillion yuan, including 12.50 trillion yuan in the inter-bank bond market, accounting for 97.5 percent of the total.

In February, the great increase in the bond issuance in the inter-bank bond market was mainly dominated by T-bond issuance. In February, the total bond issuance reached 183.71 billion yuan, representing an increase of 44.0 percent from January, including 56.97 billion yuan of book-entry T-bonds, 98.54 billion yuan of policy financial bonds issued by policy banks, and 28.20 billion yuan of short-term financing bills issued by enterprises.

From January through February, bonds issued in the inter-bank market were dominated by medium-term bonds, including 54.12 billion yuan of bonds with maturity of 1 year or shorter (excluding central bank bills. The same applies below.), accounting for 17.39 percent of the total, and 199.178 billion yuan of bonds with maturity from 1 year to 10 years, accounting for 63.98 percent of the total and 58 billion yuan of bonds with maturity of over 10 years, accounting for 18.63 percent.

In terms of bond maturity structure, bonds issued in February were mainly medium and long-term bonds. Bonds with maturity of 1 year or shorter accounted for 15.3 percent of the total, bonds with maturity of 1 year to 10 year accounted for 53.1 percent and bonds with maturity of over 10 year accounted for 31.6 percent.

2.Inter-bank Funding

From January and February, the inter-bank funding market performed well with increasing trading volume. Inter-bank funding volume increased by 260.42 percent y-o-y to 2.10967 trillion yuan. In February, due to the Spring Festival, the inter-bank funding volume totaled 982.861 billion yuan, 12.8 percent less than that in the previous month. The 1-day trading products dominated the product structure with a volume of 641.041 billion yuan, accounting for 65.2 percent of the total turnover. The weighted average interest rate of inter-bank funding posted 2.65 percent, up 33 percentage points month-on-month. The weighted average interest rate of 7-day products was 3.28 percent, down 17 percentage points from the previous month.

3.Repo

Repo transactions remained brisk, and the turnover increased greatly in January through February. Bond pledged repo was traded at a volume of 7.92 trillion yuan, representing an increase of 64.66 percent y-o-y. Due to the Spring Festival, the bond pledged repo transaction volume totaled 3.74273 trillion yuan in February, 10.0 percent less than that in January. The 1-day repo product, as the dominant product, accounted for 48.4 percent of the total turnover of bond pledged repo. The weighted average interest rate of the inter-bank bond repo market crawled up in February. The weighted average interest rate was 2.84 percent for bond pledged repo, an increase of 3 basis points over January, and 2.31 percent for 1-day pledged repo, up 33 basis points from January.

4.Spot Bond Trading

From January through February, the bond market witnessed brisk spot trading and a year-on-year increase in volume and strengthened liquidity. From January through February, the spot trading volume in the inter-bank bond market registered 4.24515 trillion yuan, representing an increase of 196.08 percent year-on-year. In February, the spot bond trading volume declined from the previous month due to the Spring Festival, with the spot trading volume registering at 2.04419 trillion yuan, 7.1 percent less than that in January.

From January through February, the exchange spot T-bond trading declined somewhat. January through February, the exchange spot T-bond trading volume totaled 16.168 billion yuan, a decrease of 31.02 percent y-o-y. In February, the exchange spot T-bond trading volume slightly increased to 8.322 billion yuan, representing an increase of 6.07 percent from that in January.

The bond market generally operated smoothly from January through February. Inter-bank bond index and exchange T-bond index showed an upward trend. The inter-bank bond index grew from 114.84 points at the beginning of 2008 to 117.49 points at the end of February, up 2.65 points or 2.31 percent. The exchange T-bond index grew from 110.78 points at the beginning of 2008 to 112.45 points at end-February, up 1.67 points or 1.51 percent.

In February, T-bond price steadily increased. Yields of bonds with various maturities dropped by varying degrees. The T-bond yield curve shifted downward slightly as a whole.

5.Stock Trading

Since the beginning of 2008, the stock market has witnessed sluggish activities and the stock indexes have plummeted in general. The Shanghai Stock Index closed at 4348.54 points at end-February, down 924.27 points from 5272.81 points at the beginning of 2008, or 21.25 percent.

In February, China´s stock market fluctuated with increased volatility. On February 4, the Shanghai Stock Index surged by 351.4 points and closed at 4672.17 points, but affected by various factors, the Shanghai Stock Index then closed at 4348.54 points at end-February. Stock trading volume decreased somewhat in February, with the average daily trading volume in the Shanghai Stock Market amounting to 88.925 billion yuan, 50.345 billion yuan less than that in the previous month.

(Data source: China Government Securities Depository Trust and Clearing Co., Ltd, China National Inter-bank Funding Center and website of Shanghai Stock Exchange)