The newly issued 5-year bonds have a coupon rate of 2.20%, which in the current financial landscape, is competitive with the same period fixed deposit rates offered by state-owned banks, and in some cases, is even slightly lower than those offered by joint-stock banks and city commercial banks. Despite the seemingly unremarkable yield, it is still well-received and favored by investors.
On the morning of May 9th this year, the Guangdong Provincial Government bonds demonstrated strong market appeal. The Guangdong Provincial Government 5-year refinancing general bonds, once on sale in the commercial bank counter market, immediately attracted a surge of buying enthusiasm. According to reports, some banks sold out their allocation of government bonds within 1 minute of the sale commencement.
Looking at the broader local government bond market, we see an upcoming peak in supply. After examining bond issuance plans disclosed by various regions, it is anticipated that the total amount of special bond issuance in the second quarter of this year will reach approximately 1.7 trillion yuan, with the scale of new special bonds possibly up to 1.2 trillion yuan, significantly accelerating the pace of issuance.
For instance, taking Guangdong Province as an example, according to the issuance schedule of the provincial finance department, local government bonds will be issued at the counter market from May 9th to 11th. The planned total nominal value does not exceed 140.2187 billion yuan, with an initial auction issuance of 120.2187 billion yuan, and the commercial bank counter issuance not exceeding 20 billion yuan. Faced with such an attractive sale, countless customers had already flocked to the banks early in the morning to prepare for the purchase. For example, staff at the Industrial and Commercial Bank of China remarked that due to earlier extensive promotion and notification, many customers were impatient to subscribe right at 10 AM, with a very fiery purchasing fervor.
According to preliminary statistics, individual customers accounted for over 90% of the purchases of these government bonds. The speed of bond allocation in the interbank market was very fast, and various banks such as the Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank, all quickly sold out their respective 500 million yuan distribution quotas immediately after the government bonds were issued, reflecting the keen interest of personal investors in such products.
Ping An Bank’s Guangzhou branch recently announced that within just 5 hours of the sale, the 5-year Guangdong Provincial Government counter bonds had sold out, achieving a total sales amount of 2.5 billion yuan. As the only joint-stock commercial bank participant in this distribution event, this branch set a record for the largest single-period distribution amount.
Although the coupon rate for the newly issued 5-year bonds is only 2.20%, matching the current fixed deposit rates of state-owned banks over the same period and even lower than some joint-stock and city commercial banks’ fixed deposit products, they are still warmly welcomed by investors. Why are such products so attractive? A wealth management manager from a state-owned bank reveals the reason. He points out that government bonds and treasury bonds have a lower threshold for investment, offer annual or lump-sum interest payments, enjoy tax-exempt benefits on the income they produce, and have very low risk, thus they are much loved by risk-averse investors.
In the current economic environment, with the norm of declining interest rates, customers are increasingly inclined to allocate their funds to low-risk, long-term products in order to lock in long-term returns and thus ensure capital preservation and interest security. This is consistent with the previous popularity of government bond issues.
It is worth noting that the recent meeting of the Political Bureau of the CPC Central Committee has sent an important signal to the market, suggesting that the peak of government bond supply is imminent. It is expected that in the next two months, there will be a peak period for new government bond issues. A bond trader from a private fund revealed this market expectation to a reporter, explaining that part of the reason is due to the issuance of local government bonds in April and its net financing scale being significantly lower than expected, as well as the expected issuance of trillions in special government bonds in May.
Market concerns about the “asset scarcity” issue have intensified. Some market participants have disclosed that in anticipation of the peak in bond supply, regulatory authorities might adopt various measures, such as cutting reserve requirement ratios, increasing reverse repo and medium-term lending facility (MLF) liquidity injections, to release liquidity and mitigate the impact on the bond market. For example, in the month leading up to the issuance of special government bonds in 2020, the central bank net injected 570 billion yuan of liquidity through reverse repos and MLF, ensuring that the bond market could operate smoothly in the face of a peak in issuance.
According to industry insiders, currently due to the relatively low risk appetite of investors, market funds continue to actively seek to diversify into highly-secure government bond assets. Once fund managers detect that the yield on 30-year government bonds has reached 2.5%, they will quickly act to snap them up, reflecting the strong market demand for government bonds.
Although the supply of government bonds is expected to increase in May and June, the phenomenon of “asset scarcity” in the bond market is expected to persist. Ming Ming, an analyst at a well-known securities institution, emphasized that the tendency of institutions to allocate bonds remains strong, and the market is fully capable of absorbing the increase in bond supply.
Especially for rural commercial banks, the increase in trading activity has become the norm, which also indicates that their preference for allocating long-term government bond assets is growing. During the bond market correction at the end of April, rural commercial banks were particularly eager to allocate 30-year government bonds with yields over 2.5%.
Furthermore, due to the reduction in deposit interest rates and the suspension of interest subsidy activities, bank wealth management product scale grew by about 2 trillion yuan in April. This growth was mainly directed towards medium- and long-term government bonds, as these investments can obtain relatively robust and substantial returns. This demonstrates that the competition for funds in high-quality bonds is still fierce.
[ad_2]
