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FTSE Russell China Bond Research Report Q3 2018

Highlights from the October report

  • On August 24 China implemented real-time delivery-versus payment (DVP) settlement – cleared through China Central Depository and Clearing Co (CCDC) – for the Bond Connect programme. This decision marks the removal of a significant barrier to offshore investment via the scheme for the European Undertakings for Collective Investment in Transferable Securities (UCITS), among other funds, institutions and investor groups.
  • The appeal of China government bonds may be increasing as trade tensions are causing capital flight to safer assets, and as China’s policymakers support more liquidity in the country’s financial system. However, over the past 3 months the benchmark 10-year yield has rebounded by over 15 bps from its early August low point to reach 3.7% at end of September on the back of rising borrowing costs and newly issued government debt.
  • Against this backdrop, China may seek to maintain a leading position in green bond issuance, while attempts to harmonise ‘green’ standards between various regulatory jurisdictions continues. According to a report published by Climate Bonds, global green bond issuance accelerated in Q2 2018, and total aligned issuance worldwide reached USD $76.9 billion for H1 2018. China accounted for 12 percent of the global market over that period – issuing USD $9.3 billion worth of green bonds aligned with international green bond definitions.

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