China secondary bond market:

Domestic bonds faced selloff in November

Offshore trading volumes slightly up in November 

• Based on MiFID and Trace data, China offshore bonds' total trading volume was $8 billion in November, more than $7 billion in October. Alibaba and Country Garden were actively traded.
• TAGG <GO> provides a display of aggregated post-trade volumes for fixed-income securities, to show market direction and liquidity.
   

Offshore trading volume of China issuers

Source: Bloomberg TAGG <GO>; TRACE and MIFID data

Domestic Yield Rose in November

Heightened volatility in the domestic bond market led to higher yields due to investors' risk-on appetite rather than to a worsened risk profile. In November, the domestic market faced a selloff sparked by the release of 20 new steps to optimize China's Covid response, and the selloff deepened as fixed-income fund investors pulled back, driven by the drop of net asset values. The bond universe's average yield to maturity for fixed-rate medium-term notes rose 60.6 basis points for all rating buckets and sectors. Yield rose across the spectrum of China's local rating buckets -- AAA rose 54.2 bps, AA rose 71.5 bps and non-rated bonds rose 61.4 bps. By sector, industrials led, rising 68.5 bps, while the real-estate sector saw a 53-bp increase -- the lowest among all sectors. Chengtou issuers' yield rose 72.9 bps.

Use FIW@CN to see yield changes based on local ratings and issuers of China's domestic bonds by sector. 

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Yield dropped on ample interbank liquidity
Domestic bond yield to maturity dropped in August on the back of the PBOC's 1-year medium-term lending facility (MLF) rate cut and the expectation that the central bank would continue to keep interbank liquidity ample due to the economic slowdown. The domestic bond universe's average yield to maturity for fixed-rate medium-term notes dropped 4.9 basis points on average for all rating buckets and sectors. By China's local rating buckets, AAA dropped 0.7 bps, AA 7.1 bps, and non-rated bonds 7.6 bps. By sector, energy dropped 10.3 bps while real estate rose 14.2 bps. Chengtou issuer spreads dropped 5.9 bps. The lower average yield across most sectors should alleviate refinance risk for corporates, especially for non-rated issuers, and surpass the rising default rate.

Use FIW@CN to see the yield change based on local ratings and issuers of China's domestic bonds by sector.

 

China domestic bonds yield to maturity by sector

Source: FIW@CN <GO>, Bloomberg Intelligence