Bond market activity up sharply in January

Official figures released Thursday from the People's Bank of China (PBC) show issuances and secondary transactions in the country's bond market expanding quickly in January, a development which experts say underscores the government's emphasis on expanding direct financing.

Specifically, authorized parties issued 521.4 billion yuan ($83.74 billion) worth of bonds in the interbank market, up 182.9 percent year-on-year, according to central bank data.

Meanwhile, bond repo turnover totaled 13.5 trillion yuan during the month, an increase of 98.8 percent over January 2012; while bond trading volume jumped to 8 trillion yuan, up 159.5 percent year-on-year.

"Such quick expansion is in line with the market's expectations, since China's debt market has been booming steadily since last year," Shi Lei, a senior bond analyst from Ping An Securities, told the Global Times.

A total of 8 trillion yuan worth of bonds were placed on the mainland in 2012, up 2.4 percent year-on-year, PBC data show. Also as of the end of last year, some 26 trillion yuan in unmatured debt securities were in the market, up 17.65 percent from the end of 2011, official figures indicate.

The bond market has been flourishing lately as the government steps forward to champion direct financing, explained Shi. The country's 12th Five-Year Plan for financial reforms identified the expansion of direct financing as a percentage of total financing as an important objective. In June 2011 as well, the PBC listed the widening of direct financing as a key goal for the development of the financial sector.

Players in the country's financial market are showing a stronger preference for debt placement as an alternative to bank borrowing due to the low costs associated with the former, said Shi.

Central bank statistics show that yuan-denominated loans accounted for 52.1 percent of total financing in China during 2012, down 6.1 percent year-on-year and reaching the lowest level in history, whereas corporate bonds equaled 14.3 percent last year, a record high.

Looking ahead though, Zhang Yongmin, a manager at a Qilu Securities Co branch in Beijing, predicted that the bond market may lose momentum in the coming months now that unmatured bonds total roughly 50 percent of the country's GDP from 2012, a percentage which he believes is approaching the limit of what the market can safely support.