Glossary
Approval-based regulation Regulations under which entities must seek explicit approval from relevant authorities before issuing bonds. See also registration-based regulation.
Asset-backed note A type of asset-backed security issued by nonfinancial companies in the China Interbank Bond Market (CIBM). These securities are regulated by the National Association of Financial Market Institutional Investors (NAFMII). The underlying assets of asset-backed notes are used as collateral and may be securitized.
Bankruptcy remoteness The status of an entity, such as a special purpose vehicle, formed to develop, own, and operate a special project while isolating and minimizing bankruptcy risk. The corresponding entity’s assets and obligations are usually limited to those necessary for development and operation of the designated project. See also special purpose vehicle.
Belt and Road Initiative An initiative proposed by President XI Jinping in 2013. Although the name refers to ancient trade routes, the initiative transcends trade and encompasses five areas to advance the initiative: (1) policy coordination, (2) facilities connectivity, (3) unimpeded trade, (4) financial connectivity, and (5) people-to-people bonds.
Benchmark rate The reference rate set by the People’s Bank of China to guide the bank loan and deposit interest rates of commercial banks. The policy rate is set with the approval of the State Council. After interest rate liberalization, the lower limit on bank lending rates was formally removed in July 2013, and the upper limit on bank deposit rates was eliminated in October 2015.
Block trade Also known as a block order, this is an order or trade submitted for the sale or purchase of a large number of securities. A block trade involves many equities or bonds traded at an arranged price between two parties, sometimes outside the open market, to lessen the effect on the security price.
See https://www.investopedia.com/terms/b/blocktrade.asp for additional information.
Bloomberg Barclays Global Aggregate Index A widely tracked global fixed income index that measures the performance of bonds in 24 local currency markets. It is a multicurrency benchmark and includes Treasury, quasi-sovereign, corporate, and securitized fixed-rate bonds. China government and policy bank bonds are included as of April 2019.
Bond Connect A pilot program that connects China’s interbank bond market (CIBM) with the world through a link between the mainland China and Hong Kong SAR market infrastructures. Under Bond Connect, foreign investors do not have to open accounts in mainland China to hold their CIBM bonds. These bonds can instead be held by foreign investors through their global custodian through the Central Moneymarkets Unit. Bond Connect includes two types of trading: northbound gives international investors access to the CIBM and began July 3, 2017. Southbound trading, which will allow mainland investors to trade in major overseas over-the-counter bond markets, will be explored at a later stage.
Bond settlement agent Someone who acts on behalf of a client to settle bond trading according to the instructions of the client.
Capital flow management measures Procedures designed under the IMF’s institutional view on the liberalization and management of capital flows that limit capital flows and encompass measures that discriminate both based on residency and those that do not.
See http://www.imf.org/external/np/g20/pdf/2018/073018.pdf for additional information.
Carry trade A strategy through which an investor borrows money at a low interest rate (typically with a short maturity) to finance the purchase of an asset that is expected to provide a higher return. A popular carry trade strategy in China before 2015 was to borrow in US dollars and lend in renminbi through bond repurchases (repos) or by investing in rates bonds (bonds with no or very low default risk). The return comes from both the positive interest rate spread and renminbi appreciation.
Central Moneymarkets Unit A centralized bond depository facility operated by the Hong Kong Monetary Authority (HKMA). It was launched in 1990 to provide clearing, settlement, and custodian services for Exchange Fund Bills and Notes (Hong Kong dollar debt securities) issued by the HKMA. The unit later expanded to cover bonds issued by the Hong Kong SAR government and debt securities issued by both public and private sector entities. In 1996, the Central Moneymarkets Unit extended its clearing and custodian services to cover debt securities denominated in foreign currencies and established a link with the Hong Kong dollar real time gross settlement system.
Chengtou bond A bond issued by a kind of state-owned enterprise, a local government financing vehicle (LGFV). LGFVs are established by local governments with capital, land, and other public resources. Bonds issued by LGFVs are usually known as urban construction bonds, or chengtou bonds in Chinese. Although there is no particular regulatory definition of chengtou, it is widely used by market participants and is, as such, classified by the China Securities Index and included in Wind databases.
China Central Depository and Clearing (CCDC) A wholly state-owned financial institution approved and funded by the State Council of China. It is an essential national financial market infrastructure that provides central registration, depository, and settlement services. The CCDC is regulated by the People’s Bank of China, Ministry of Finance, and China Bank and Insurance Regulatory Commission. It is one of the three institutions that make up the Central Securities Depository and Securities Settlement System. The other two are the Shanghai Clearing House and the China Securities Depository and Clearing Corporation.
China Foreign Exchange Trade System (CFETS) Also known as the National Interbank Funding Center, an institution directly affiliated with the People’s Bank of China (PBC). It provides a series of services covering issuance, trade, post-trade processing, information, benchmark, and training services for the interbank foreign exchange market, money market, and bond market online and via a dedicated line through advanced electronic information technology. CFETS monitors market transactions daily and provides support and service for the PBC and self-regulated market organizations. CFETS publishes market benchmarks, including the renminbi central parity rate, Shanghai interbank offered rate (SHIBOR), CFETS renminbi index, loan prime rate, renminbi reference rate, bond indices, yield curves, and other information offering reference prices for the market. See http://new.chinamoney.com.cn/english/ausbid/ for additional information.
China government bond (CGB) A Treasury bond issued by the Ministry of Finance.
China interbank bond market (CIBM) Introduced by the People’s Bank of China in 1997 and the largest fixed income market in China, accounting for more than 90 percent of all bond issuance and trading activities. It is an over-the-counter market and operates independently of the Shanghai and Shenzhen exchange bond markets. Many foreign financial institutions are able to invest in China’s domestic interbank bond market.
See also National Association of Financial Market Institutional Investors (NAFMII).
Citigroup World Government Bond Index (WGBI) Now called the FTSE World Government Bond Index. On August 31, 2017, the London Stock Exchange Group (LSEG) acquired The Yield Book and Citi Fixed Income Indices businesses from Citi.
See FTSE World Government Bond Index.
Climate Bonds Initiative An investor-focused, not-for-profit international organization working solely to mobilize the international bond market for climate change solutions by promoting investment in projects and assets necessary for a rapid transition to a low-carbon and climate-resilient economy. See https://www.climatebonds.net/.
Close-out netting A technique used to determine the net obligations of a defaulted counterparty to a derivative or repo transaction. The counterparty’s remaining contractual obligations are terminated, and the final positive and negative replacement values of its positions are combined into a single net payable or receivable. Several countries have carve-outs from their bankruptcy laws to allow for close-out netting. Without them, insolvency administrators could immediately trigger contracts under which the defaulted party is owed money but that would require counterparties with opposite contracts to get in line with other creditors. This could take years to resolve and result in a smaller payout. See https://www.risk.net/definition/close-out-netting/.
CNH forward The deliverable forward exchange rate of the renminbi against the US dollar quoted in the offshore market, mostly in Hong Kong SAR. Like other currency forwards, the term of the liquid CNH forward ranges from overnight to 12 months.
Collateralized loan obligation A form of securitization in which portfolios of loans are securitized and managed as a fund. Each is structured as a series of tranches of interest-paying bonds, along with a small portion of equity.
Collective investment scheme Also known as a collective investment trust, a fund operated by a bank, security house, or trust company that manages a group of pooled trust accounts. These funds group assets from individuals and organizations to develop a larger, diversified portfolio.
Commercial paper A short-term debt instrument issued by nonfinancial firms registered with the National Association of Financial Market Institutional Investors (NAFMII) in accordance with the Guidelines on Interbank Bond Market Non-financial Firms Financial Tools. It is traded on the interbank bond market. Typical maturities are 3, 6, 9, and 12 months.
Corporate bond A type of credit bond issued by nonfinancial firms in China and regulated by the China Securities Regulatory Commission according to the Securities Law and the Guidelines on Corporate Issuance and Trading and traded on the exchange market only.
See also enterprise bonds and medium-term notes.
Covered bond A debt security issued by a financial institution and backed by a separate group of assets; if the financial institution becomes insolvent, the bondholders have recourse to the collateral. Covered bonds provide an efficient, lower-cost way for lenders to expand their business rather than issuing unsecured debt instruments.
See https://www.investopedia.com/terms/c/coveredbond.asp for additional information.
Credit asset-backed security A security issued by financial institutions such as banks, automobile financing companies, consumer financing companies, and financial leasing companies in the Chinese interbank market. Usually, the underlying assets are, for example, loans extended by the initiating financial institutions. Their issuance is regulated by the People’s Bank of China. Issuers must register with the China Banking and Insurance Regulatory Commission.
Credit bond A bond issued without collateral by nonfinancial enterprises. In China, credit bonds comprise enterprise bonds, corporate bonds, medium-term notes, and other nonfinancial enterprise debt-financing instruments.
Credit default swap (CDS) A financial swap agreement under which the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. The seller insures the buyer against the default of a particular reference asset. The buyer makes a series of payments (the CDS “fee” or “spread”) to the seller and, in exchange, may expect to receive a payoff if the asset defaults. In China, credit default swaps were launched in October 2016. Default events can be either security defaults or issuer defaults. See https://en.wikipedia.org/wiki/Credit_default_swap for additional information.
Credit-linked note A note that can be regarded as a credit default swap with cash collateral. The credit risk bearer first sets up a special purpose vehicle (SPV), and the two parties enter a credit-default-swap-style contract. The SPV then issues credit-linked notes to other investors. Investors purchase the credit-linked notes by paying the face-value principal and receive interest payments. When certain credit default events take place before credit-linked notes mature, the SPV pays the credit risk bearer according to a credit-default-swap-style contract and then pays back the credit-linked note principal with residual net value. Otherwise, the full amount of principal is repaid. In China, credit-linked notes were launched in October 2016. A default event can be either a bond default or a default by the issuer, or both.
Credit risk mitigation agreement A credit-default-swap-style contract in which one party pays a fee in exchange for another party paying a certain amount of money when a specified credit default event takes place. In China, the agreements were launched in October 2010. Before October 2016, a credit-risk-mitigation agreement could cover only default events of bonds, not issuers.
Credit risk mitigation warrant A credit-default-swap-style security in which the issuer pays a fee in return for investors’ payment when certain credit default events take place. In China, the warrants were launched in October 2010. Before October 2016, a credit-risk-mitigation warrant could cover only default events of bonds, not issuers.
Cross-currency swap Over-the-counter derivatives in the form of an agreement between two parties to exchange interest payments and principal denominated in two different currencies.
Debt-equity swap A transaction in which the obligations or debts of a company or individual are exchanged for equity. In China, this often involves creditors (banks) converting nonperforming corporate loans into equity holdings.
Debt financing instrument of nonfinancial enterprise A marketable security issued by an incorporated nonfinancial enterprise, traded on the interbank bond market, registered with the National Association of Financial Market Institutional Investors under the People’s Bank of China. These instruments conform to the Guidelines on Interbank Bond Market Non-financial Firms Financial Tools, including commercial paper, medium-term notes, private placement notes, and so on.
Delivery versus payment settlement A settlement procedure in securities trading. It stipulates that payments must be made before or at the same time as delivery of securities. The delivery versus payment procedure aims to eliminate counterparty risk.
Dim sum bond A renminbi bond issued outside mainland China. The term comes from “dim sum,” a popular style of cuisine in Hong Kong SAR. The first dim sum bond was issued by the China Development Bank in July 2007, with face value of RMB 5 billion and a term of two years. In 2010, McDonald’s was the first foreign company to issue a dim sum bond, with a face value of RMB 200 million and a three-year maturity.
Double-taxation treaty Usually refers to agreements (typically between two countries) for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital.
DR007 A weighted seven-day interbank pledged repo rate covering deposit institutions. Although the People’s Bank of China has not confirmed DR007 as the policy interest rate yet, it is closely watched by the market to determine interbank liquidity.
Enterprise asset-backed security Issued by nonfinancial firms or financial institutions on the exchange market in Shenzhen or Shanghai and regulated by the China Securities Regulatory Commission. Only qualified investors may invest in enterprise asset-backed securities.
Enterprise bond A type of credit bond issued by nonfinancial firms in China. They are regulated by the National Development and Reform Commission and traded on both the China interbank and the exchange bond markets. The market is almost exclusively for state-owned enterprises. See also corporate bond and medium-term notes.
Entrusted investment fund An investment fund outsourced by some small banks that lack expertise. These banks outsource their investment fund to a mutual fund or security house for management under their investment guidance.
Exchange bond market A market in which individual and small and medium-size institutional investors carry out trading through a concentrated matchmaking method on the exchanges. The exchange market in China includes the Shanghai Stock Exchange and the Shenzhen Stock Exchange.
Exchange-for-physical (EFP) A transaction between two parties in which a futures contract on a commodity is exchanged for the actual physical good. This transaction involves a privately negotiated exchange of a futures position for a corresponding position in the underlying physical good.
See https://en.wikipedia.org/wiki/Exchange_of_futures_for_physicals for additional information.
Exchange-for-swap (EFS) A transaction negotiated privately in which a futures contract for a physical item is exchanged for a cash-settled swap contract. It is similar to an exchange-for-physical, except that it involves a cash contract rather than a physical goods contract.
See https://en.wikipedia.org/wiki/Exchange_of_futures_for_swaps for additional information.
Exchange-traded fund (ETF) A marketable security that tracks a stock, commodity, or bond index or other baskets of assets.
Federal and unitary countries A federal system—as in Canada, Germany, and the United States—that shares power between the federal government and the states or provinces. It refers to a political entity characterized by a union of partially self-governing provinces, states, or other regions under a central federal government (federalism). A unitary system of government (or unitary state) is a sovereign state governed as a single entity. The central government delegates different degrees of power to the administrative divisions. Examples include China, Japan, Korea, Sweden, and the United Kingdom.
Financial bond A bond issued by a financial institution. These can be policy bank bonds and commercial financial bonds. Financial bonds are issued both on the China interbank market and on the exchange markets and are regulated by the People’s Bank of China, China Banking and Insurance Regulatory Commission, and China Securities Regulatory Commission.
Financial cycle The cyclical rise and fall of key factors influencing financial markets, such as asset prices and volatility; leverage, credit availability; and investors’ risk appetite, expectations, and confidence. Compared with business cycles, financial cycles tend to be longer (5–20 years), with a median length of about 15 years. They tend to be longer in liberalized, developed markets than in emerging markets.
Foreign exchange and interest rate derivative A kind of security whose price or income depends on the underlying price of certain exchange rates or interest rates. Common foreign exchange and interest rate derivatives include forwards, futures, options, and swaps.
Forward rate agreement An over-the-counter contract between parties that determine the rate of interest or the currency exchange rate to be paid or received on an obligation beginning at a future start date. The forward rate agreement determines the rates to be used, along with the termination date and notional value.
FTSE World Government Bond Index (WGBI) A widely followed fixed income index that measures the performance of local-currency-denominated, fixed-rate, and investment-grade-rated sovereign bonds in more than 20 countries. See also Citigroup World Government Bond Index (WGBI). See https://www.yieldbook.com/m/indices/single.shtml?ticker=WGBI for additional information.
GARCH and EGARCH A generalized autoregressive conditional heteroskedasticity model that is a statistical model for time series data and describes the variance of the current error term as an autoregressive moving average model of the previous time periods’ error terms. EGARCH refers to an exponential generalized autoregressive conditional heteroskedasticity model. The GARCH model imposes nonnegativity constraints on the parameters of the error term function, but there is no such restriction on the EGARCH model proposed by Daniel B. Nelson, in which the conditional variance is an asymmetric function of lagged error terms.
Global custodian bank A bank that provide custodial services in various countries to support holding and trading of securities by clients. Custodians are specialized financial institutions that safeguard the assets of clients, arrange or facilitate settlements, and collect information on incomes.
Government guided fund A fund supplied by a mixture of budgetary (junior tranche) and nonbudgetary (debt-like senior tranche delivering a steady return) contributions typically by state-owned enterprises, local government financing vehicles, banks, and other financial institutions.
Granger causality A statistical technique to determine whether a time series can be statistically predicted by previous observations of another time series. See https://en.wikipedia.org/wiki/Granger_causality for additional information.
Green bond A bond issued to finance projects with potential environmental protection and climate change mitigation benefits. Because there is no unified definition of green bonds across countries, a third party usually verifies whether a bond qualifies as a green bond. For example, nuclear energy is not considered green in some eastern European countries, but most economies agree that solar and wind energy are green.
Green covered bond A bond with a dual recourse structure that is issued by a bank. If the issuing bank defaults, investors are covered by a dedicated pool of assets, such as renewable energy power plants.
Huber-White sandwich estimator An estimation technique that allows heteroskedastic residuals. Basic regression and time series models assume that the error term has the same variance across all observations. When this assumption does not hold, the errors are said to be heteroskedastic, and the estimates are inconsistent and biased in nonlinear models. Huber-White sandwich estimators are used to allow the fitting of a model that does contain heteroskedastic residuals.
Inflation targeting A monetary policy regime in which a central bank has an explicit target inflation rate for the medium term and announces this target to the public.
Insurance asset-backed plan A plan issued by financial companies and regulated by the China Banking and Insurance Regulatory Commission. Only qualified investors may invest.
Interest rate swap (IRS) A kind of financial derivative that involves two parties exchanging the interest payments of two assets, usually of equal amount.
Intergovernmental relations An interacting network of institutions at the national and subnational (provincial and local) levels, set up and refined to enable the various parts of government to cohere in a manner appropriate to institutional arrangements. Intergovernmental relations comprise the processes and institutions through which governments within a political system interact. Analysis of these relations has traditionally focused on formal structure and institutions, in particular those linked with the financial arrangements among government levels.
International Capital Market Association (ICMA) A membership association headquartered in Switzerland, committed to serving the needs of its wide-ranging members, including private and public sector issuers, financial intermediaries, asset managers and other investors, capital market infrastructure providers, central banks, law firms, and others worldwide. It focuses on a comprehensive range of regulatory and market practice issues that affect all aspects of international market functioning. ICMA prioritizes four core areas: primary markets, secondary markets, repo and collateral markets, and green and social bond markets. See https://www.icmagroup.org/About-ICMA/ for additional information.
International Development Finance Club A membership association of development banks. It aims to promote more efficient global development. It was founded in 2011 and had 23 members as of July 2018. See https://www.idfc.org/ for additional information.
International Swaps and Derivatives Association An international organization ensuring the enforceability of netting and collateral provisions in derivatives trading. It has more than 900 member institutions from 70 countries, comprising a broad range of derivatives market participants. See https://www.isda.org/about-isda/ for additional information.
Investment vehicle A nonbank financial entity typically controlled by a third-party financial institution, typically a bank or trust company. In China, these vehicles are largely funded through the issuance of investment products, typically sold as high-yielding alternatives to bank deposits (for example, bank wealth management products) or customized packages of riskier loans (to other banks and institutional investors). They invest in various assets, such as bonds, bank deposits, and nonstandard credit assets, as well as in other investment products. These vehicles rely on short-term financing to use leverage and manage their maturity mismatches, and often benefit from implicit guarantees from their sponsoring financial institution.
See Chapter 1 of the IMF’s April 2018 Global Financial Stability Report for more information.
ISDA Master Agreement A document agreed to internationally and published by the International Swaps and Derivatives Association, which is used to provide certain legal and credit protections for parties that enter into over-the-counter derivatives transactions.
JPMorgan Government Bond Index–Emerging Markets (GBI-EM) A group of indices covering local currency bonds issued by governments of emerging markets. It is provided by JPMorgan Chase.
See https://www.jpmorgan.com/country/US/EN/jpmorgan/investbk/solutions/research/indices/product for additional information.
Local government debt bond-swap program A three-year program the central government rolled out in 2015 to replace debt deemed to be the obligation of local governments—in the form of bank loans, local government financing vehicle (LGFV) bonds, trusts, and other nonstandard borrowing—with local government bonds. The RMB 18 trillion program was completed in 2018. It allowed local governments to restructure off-budget LGFV debt at lower interest rates and with longer maturities, on average.
Local government financing vehicle (LGFV) An economic entity (usually a corporation) with independent legal status set up by local governments to finance investment and urban development projects (chengtou). Local governments usually inject capital, land, or equities into LGFVs as initial capital. LGFVs then raise funding in the market or borrow from banks, often with implicit guarantees of the local governments.
London interbank offered rate (LIBOR) A benchmark rate that represents the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans. LIBOR is an average value of the interest rate, which is calculated from estimates submitted by the leading global banks on a daily basis.
See https://www.investopedia.com/terms/l/libor.asp for additional information. See also Shanghai interbank offered rate (SHIBOR).
M2 A monetary aggregate including currency in circulation, demand deposits, time deposits, savings deposits, and other deposits. Until 2018, China had a quantitative annual M2 target/forecast.
Medium-term lending facility (MLF) A monetary policy tool used by the People’s Bank of China to provide medium-term liquidity to policy banks, development financial institutions, and commercial banks. It requires pledged government securities, highly rated bonds, or high-quality loans with three-month, six-month, or one-year maturities. It was introduced in September 2014.
Medium-term note A type of bond issued by nonfinancial firms, registered with the National Association of Financial Market Institutional Investors (NAFMII) in accordance with the Guidelines on Interbank Bond Market Non-financial Firms Financial Tools. These notes are traded on the Chinese interbank market. Typical maturities are three and five years. See also enterprise bonds and corporate bonds.
Multitier and single-tier custodian system A system under which custodians are divided into different tiers and ultimately centralized at one central depository (multitier). Custodians in each tier provide services that fit their own customer bases. Under a single-tier system, all investors must open accounts under their own names in the national clearing and settlement depository. Although the operational risk in a single-tier custodian system is low, the total cost of large quantities of settlements is rather high.
Mutual fund A professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional.
National Association of Financial Market Institutional Investors (NAFMII) An association that aims to propel the development of the over-the-counter financial market, which is composed of the interbank bond, interbank lending, foreign exchange, commercial paper, and gold markets. It was founded September 3, 2007, with the approval of the State Council of China. It is a self-regulatory organization whose members includes policy banks, commercial banks, credit cooperative banks, insurance companies, securities houses, fund management companies, trust and investment companies, finance companies affiliated with corporations, credit rating agencies, accounting firms, and companies in the nonfinancial sector. See also China interbank market (CIBM).
See http://www.nafmii.org.cn//english/aboutus_e/aboutnafmii_e/201202/ t20120222_354.html for additional information.
NAFMII Master Agreement A document published by the National Association of Financial Market Institutional Investors that provides a uniform documentation approach for participants in the China interbank market involved in financial derivatives transactions.
Nominal effective exchange rate (NEER) A measure of the exchange value of a currency against a basket of foreign currencies, usually expressed as an index using values of bilateral trade in assigning the weights to foreign currencies.
Open interest Used in derivatives markets to refer to the number of outstanding derivatives contracts that have not been settled (also referred to as open commitments/contracts).
Open market operation (OMO) Trading conducted by a central bank with banks and other qualified institutions in its local currency to achieve goals such as keeping short-term interbank interest rates within a certain range through adjustment of liquidity in the banking system. An open market operation is a common tool used by central banks to influence liquidity in the financial system. In China, the People’s Bank of China conducts open market operations, mainly through repurchase agreement (repo), reverse repo, and short-term liquidity operations.
Panda bond A bond denominated in renminbi by a non-Chinese issuer and issued in China’s domestic bond market. The first panda bonds were issued in 2005 in the Chinese interbank bond market by two multilateral institutions, the Asian Development Bank and the International Finance Corporation.
Pledged supplementary lending (PSL) A lending facility through which the People’s Bank of China provides long-term, stable, and properly priced loans for development, such as shantytown redevelopment projects and improved rural infrastructure. It also provides liquidity support for policy banks to extend credit to strategically important areas such as agriculture, water conservation, and green energy. These loans require highly rated bonds or high-quality loans as collateral.
Policy bank bond A bond issued by the China Development Bank, Export-Import Bank, or China Agricultural Development Bank.
Policy bank A state-owned financial institution in China responsible for implementing government economic policies. These comprise the China Development Bank, Export-Import Bank, and China Agricultural Development Bank. In 2015, the China Development Bank was designated by the State Council as a development finance institution, but it is still considered a policy bank by market participants.
Private placement note A type of credit bond issued by nonfinancial firms to selected qualified investors, registered with the National Association of Financial Market Institutional Investors (NAFMII) in accordance with the Guidelines on Interbank Bond Market Non-financial Firms Financial Tools, and traded on the interbank bond market.
Qualified Foreign Institutional Investor (QFII) A program that allows foreign institutional investors to use foreign currency funds to invest in China’s domestic capital market. The QFII program was introduced in 2002 by the China Securities Regulatory Commission. Foreign investment in China is subject to a quota system governed by the China State Administration of Foreign Exchange.
Real estate investment trust (REIT) A company that owns, operates, or finances income-producing real estate. REITs give each investor either a percentage interest in a property or an interest in a loan secured by a mortgage or deed of trust on a property. REITs often trade on major exchanges in the same way as other securities and give investors a liquid stake in an array of real estate assets.
Registration-based regulation Regulation under which an economic entity must register with relevant authorities only information related to the business it hopes to conduct without seeking approval. If a certain bond issuance is regulated on a registration basis, firms need submit only the relevant information to the regulating agencies before issuing the bonds. They do not have to wait for approval documents. See also approval-based regulation.
Repo A repurchase agreement that is a form of collateralized borrowing in which the borrowing party sells a security and enters into a forward purchase agreement to repurchase the security at a later date. The interest rate is often determined by the relative price of the security in the first and second transactions.
See https://www.investopedia.com/terms/r/repurchaseagreement.asp for additional information.
Reserve requirement The minimum amount of reserves commercial banks must hold, usually in the form of a percentage of deposits.
RMB Qualified Foreign Institutional Investor (RQFII) A program that allows foreign investors to use renminbi-denominated funds raised outside mainland China to invest in China’s domestic capital markets. The RQFII program was initiated in late 2011. RQFII investment licenses are approved by the China Securities Regulatory Commission, and the investment quota is determined by the State Administration of Foreign Exchange.
Shanghai Clearing House (SHCH) A qualified central counterparty accepted by the People’s Bank of China and one of the central securities depositories in China. Established November 28, 2009, the SHCH is an important financial market infrastructure in China.
See http://english.shclearing.com/aboutus/companyProfile/?xyz=0.550267801_6970497 for additional information.
Shanghai interbank offered rate (SHIBOR) A daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Shanghai interbank money market. See also London interbank offered rate (LIBOR).
Short-term liquidity operation (SLO) An open market operation tool of the People’s Bank of China to manage the money supply. Short-term liquidity operations are conducted mainly through repurchase agreements (or reverse repurchase agreements) with large banks in China.
Special construction funds Public investment funds entirely funded by policy banks.
Special drawing right (SDR) An international reserve asset introduced by the IMF in 1969 to supplement its member countries’ official reserves. To date, SDR 204.2 billion (equivalent to about US$291 billion) has been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies—the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.
See https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR for additional information.
Special purpose vehicle (SPV) A bankruptcy-remote entity that a parent company uses to isolate or securitize assets. It often holds these assets off its balance sheet. An SPV makes a subsidiary company’s obligations secure even if its parent company goes bankrupt. Sometimes an SPV is designed to serve as a counterparty for swaps and other credit-sensitive derivative instruments. See also Bankruptcy remoteness.
Standard lending facility A liquidity supply channel of the People’s Bank of China to meet temporary liquidity demands of commercial banks and rural cooperative financial institutions. It is considered the upper bound of the interest corridor. It was introduced in early 2013. The maturities are overnight, seven days, and one month.
State Administration of Foreign Exchange (SAFE) A deputy-ministerial-level state administration responsible for foreign exchange administration in China, supervised by the People’s Bank of China. SAFE headquarters are in Beijing, with branches and subbranches across the country.
Targeted medium-term lending facility (TMLF) A lending facility introduced December 2018 by the People’s Bank of China as a monetary policy tool to provide long-term stable funding for financial institutions to expand their credit support to small and micro and private enterprises.
Total return swap A transaction that usually involves two parties. One party pays according to a predetermined funding rate, which can be either fixed or variable. The other party pays the total return of the underlying asset, including both interest and capital gains.
VIX An index computed by the Chicago Board Options Exchange. It measures market expectations of future stock market volatility based on option prices of the S&P 500 index. It is considered a gauge of risk-on or risk-off sentiment in the financial market. See http://www.cboe.com/vix for additional information.
Window guidance An informal way for monetary and regulatory authorities to influence the behavior of banks and other financial institutions.
Yield curve Shows the relationship between interest rates and maturity. It usually puts maturity on the horizontal axis and the corresponding interest rates on the vertical axis. A shift or change in the shape of the yield curve over time can provide information on market expectations of the future movement of interest rates.
The glossary draws on individual chapters and input from the Chinese authorities, as well as information in the public domain, including content.next.westlaw.com, cop23.com.f, en.wikipedia.org, english.shclearing.com, new.chinamoney.com.cn, www.cboe.com, www.climatebonds.net, www.icmagroup.org, www.idfc.org, www.imf.org, www.investopedia.com, www.isda.org, www.jpmorgan.com, www.nafmii.org.cn, www.risk.net, and www.yieldbook.com.
Index
A
ABN. See Asset-backed notes
ABN AMRO, 174
ABS. See Asset-backed securities
Accounting standards
net asset value accounting, 275, 275n19
for panda bonds, 204
Administrative Measures for the Credit Asset Securitization Pilot Program, 176–77
Allen, F., 368
Altman, E. I., 351n20
AMAC. See Assset Management Association of China
Approval-based regulation, 381
Arbitrage
for credit bonds, 115
for derivatives markets, 274
for dim sum bonds, 341
for Treasury bond futures, 145
Aruoba, S. B., 62
Asian Development Bank
dim sum bonds and, 347
panda bonds of, 198
Asset-backed notes (ABN), 104n4, 169, 171t, 381
Asset-backed securities (ABS), 11n10, 15, 104, 169–94
categories of, 171t
CCDC and, 176, 178–79, 187, 188t
default rates for, 189
on exchange bond market, 178, 189
global financial crisis and, 179–80
green bonds as, 157
green covered bonds as, 155, 155n1
information disclosure for, 188
infrastructure for, 178–79, 184–87
in interbank bond market, 170, 170n1, 175, 189
issuance of, 172f, 185f
legal system and, 187
liquidity of, 187
market development, 184
market exploration, 172–74
normalized development, 182–87
pilot programs, 176–79, 177t, , 178t
pilot programs relaunch, 180–82
ratings for, 170, 176, 178–79, 184–85, 188, 190t
registration of, 189
regulation of, 174–79, 177t, 178t
taxes and, 187
trust model for, 174n4
yield curve for, 179
See also Credit asset-backed securities; Enterprise asset-backed securities
Asset Management Association of China (AMAC), 182n10
Ayala, D., 352n21
Ayotte, K., 174n5
B
Baker, S. R, 347, 349, 365, 366
Balance of payments, IMF and, 35
Bank of China
dim sum bonds and, 339n9
green bonds and, 160–61, 163–64
Bank of England, 26, 295, 305, 315
social media at, 307f
Bankruptcy remoteness, 173–74, 174n5, 187, 381
Basel III liquidity coverage ratio, 213
Bayoumi, T., 40n5
Beijing Enterprises Water Group, 161
Belt and Road Initiative, 18, 381
XI Jinping and, 18n15
Benchmark rate, 381
CGBs yield curve and, 65, 75
for credit bonds, 112–13, 112n10, 114f
enterprise bonds and, 13
PBC and, 75, 301t
State Council and, 297
strengthening of, 274–75
Bid-ask spreads
for policy bank bonds, 267–68
for Treasury bond futures, 145
Black and Cox model, 112n9
Blinder, A. S., 305
Block trade (block order), 381
for corporate bonds, 135n8
for Treasury bond futures, 151, 151n8
Bloom, N., 347, 349, 365, 366
Bloomberg Barclays Global Aggregate Index, 17, 17n13, 200, 229–30, 382
policy bank bonds in, 3
Bond Connect, 16, 203, 382
ABS and, 184
credit bonds and, 99, 99n1
hedging and, 240, 241
Hong Kong SAR and, 99n1, 211n1
for interbank bond market, 211
interest rate hedging and, 242
launching of, 199
local government bonds and, 135
offshore bond market and, 37n2
taxes and, 233
Treasury bond futures and, 151
Bond market
capital accounts and, 25
capital flows and, 205
capitalization and bank assets of, 34, 34f
communication in, 26–27
convenience of, 203
credit risk in, 215, 249–52
credit spreads in, 218–19, 219f
current conditions of, 197–200, 200f
default rates in, 24, 25f, 213–19, 218f, 284–90, 285f–90f
development and opening of, 18–23
development and structure of, 7–15, 7f, 8f, 9f
empirical assessment of, 13
exchange rate and, 24–25
external influences to, 41–45, 42f–44f
financial cycle and, 45, 46f
financial stability of, 20–21, 211–28, 269–72, 270f–72f
foreign participation in, 15–18, 33–36, 35f–37f, 198–200, 200f, 229–55, 230f, 232f, 247t
fragmentation of, 249
gross settlement method for, 203
hedging on, 201–2, 265–68
implicit guarantees in, 12, 21, 22, 23–24, 217–18, 279–94
indices for, 199
information availability in, 203
interest rates and, 215
investors in, 223t
legal system for, 203–5
leverage in, 213
leverage risk of, 225
liberalization of, 37–41, 38f–40f
liquidity in, 21, 52–54, 201–2, 215, 221f, 222f, 225–26, 257–59, 258f, 259f, 260n5, 273–76
liquidity risk in, 219–25, 223f
maturity mismatches in, 215
opening up, 197–209
PBC and, 26–27
policy recommendations, 205–8
ratings in, 22–23, 23n19, 218–19, 249–52, 250t, 251t
recent developments in, 124f
recommendations for, 225–27
regulation of, 21–22
regulatory staff for, 27, 28f
removing obstacles from, 19–20
RMB in, 199–205
rollover risk in 215–16, 216f
settlement period in 203
structure features of, 261–69
taxes and, 19, 19n16, 204
total value in 38, 38f
trading patterns of, 21, 257–77, 260f
uncertainty reduction for, 227
See also Exchange bond market; Interbank bond market; Offshore bond market; specific bond types
Bond settlement agent, 241, 382
Brunnermeier, M. K., 271n13
Bruno, V., 365
Budget Law, 281–83
C
Caixin Purchasing Managers Index, interest rates and, 309
Capital accounts
bond market and, 25
carry trade and, 358
Capital flow management measures, 358, 382
Capital flows
bond market and, 205
corporate dollar bonds and, 358–59
financial cycle and, 45, 46f
Treasury bond futures and, 151
Carry trade, 261, 261n6, 263–65, 382
capital accounts and, 358
corporate dollar bonds and, 357, 367
Cassola, N., 53
Caterpillar, 337
CBIRC. See China Banking and Insurance Regulatory Commission
CCB. See China Construction Bank
CCDC. See China Central Depository and Clearing
CDB. See China Development Bank
CDs. See Certificates of deposit
CDS. See Credit default swaps
Central Economic Work Conference, of PBC, 309
Central Moneymarkets Unit, 337, 338f, 382
Central University of Finance and Economics (CUFE)-CNI Green Bond Index, 159
Certificates of deposit (CDs)
PBC and, 302t
See also Negotiable certificate of deposits
CFETS. See China Foreign Exchange Trade System
CGBs. See China government bonds
Chaoi Debt, 280
Chengtou bonds (urban construction bonds), 12, 12n11, 281–82, 282n2, 383
Chengtou zhai. See Local government financing vehicles
Chicago Board Options Exchange, VIX of, 9, 41, 62, 396
on corporate dollar bonds, 366
global financial crisis and, 66
China Agricultural Development Bank
green bonds and, 163
policy bank bonds of, 10, 393
China Banking and Insurance Regulatory Commission (CBIRC)
ABS and, 15, 169, 170
financial bonds and, 13
insurance ABS and, 17H 389
liquidity coverage ratio rules of, 213
local government bonds and, 133n7
China Banking Regulatory Commission
ABS and, 175, 182
Administrative Measures for the Credit Asset Securitization Pilot Program of, 176–77
ChinaBond China Climate-Aligned Bond Index, 160
ChinaBond China Green Bond Index, 159
green bonds and, 158
ChinaBond CIB Green Bond Index, 159
ChinaBond Interbank Asset-Backed Securities Index, 184
China Central Depository and Clearing (CCDC), 383
ABS and, 176, 178–79, 187, 188t
green bonds and, 158
taxes and, 233
Treasury bond futures and, 143n2
China Chengxin International Credit Rating, 23n19
China Cinda Asset Management Co., 174
China Construction Bank (CCB), ABS and, 174, 174n4, 175
China Credit Trust Company, 280
China Development Bank (CDB)
ABS and, 174, 175
credit bonds and, 112n10
credit spreads and, 283n3 green bonds and, 161
policy bank bonds and, 10, 79–80, 225, 393
China Energy Conservation and Environmental Protection Group Consulting Co., green bonds and, 158
China Europe International Exchange, 163
China Financial Futures Exchange, 13–14
Treasury bond futures and, 143n2
China Financial News Green Bonds Database, 157, 157n7
China Foreign Exchange Trade System (CFETS), 383
currency baskets and, 296n3
China government bonds (CGBs)
futures on, 274
interest rate hedging and, 242
liquidity of, 56–57
overview of, 53–57, 55f–57f
short-term interest rates and, 71
China government bonds (CGBs), yield curve of, 51–70, 54n3, 275
averages, 86t
benchmark rate and, 65, 75
CPI and, 61, 62, 63f, 64, 81, 87t, 88f–91f
global financial crisis and, 61–62, 65–68, 66f–70f, 88f–44f, 95t, 96t
inflation and, 81
liquidity in, 51
monetary policy and, 64–65
policy bank bonds and, 76–81, 77f–85f
PPI and, 62, 64
repos and, 65–66
residuals, 87t
robustness test for, 84f–85f, 87t
shocks to, 63–64, 65f
simple correlation for, 61–62, 61t, 62f
China Huarong Asset Management Co., 174
China Interbank Bond Market (CIBM), 197, 381, 383
custodian system of, 202
Hong Kong SAR and, 199
panda bonds and, 198
taxes and, 233
Treasury bond futures and, 151
China interbank bond market (CIBM), 382
China International Marine Containers Group, 174
China National Erzhong Group, 288
China Power Investment Corporation, 161
China Securities Depository, 143n2
China Securities Index Co., 158
China Securities Regulatory Commission (CSRC)
ABS and, 15, 170, 183
corporate bonds and, 11, 104, 384
credit ABS and, 171t
enterprise ABS and, 171t
enterprise bonds and, 102
financial bonds and, 13
green bonds and, 14, 162–63
local government bonds and, 133n7
panda bonds and, 198
ratings agencies and, 22
regulatory cap by, 213
Shanghai Stock Exchange and, 201
Shenzhen Stock Exchange and, 201
China Society for Finance and Banking, Green Finance Committee of, 14, 155, 156, 163
China-United Kingdom Economic and
Financial Dialogue, 160
China-United Kingdom Green Finance Taskforce, 163
China United Ratings, 23n19
Chinese yuan/US dollar (CNY/USD), 296n3
CIBM. See China Interbank Bond Market
CITIC Group
ABs and, 181
financial bonds and, 13
Citigroup World Government Bond Index (WGBI), 200, 383–84
Clearing Corporation Limited, 143n2
Climate Bonds Initiative, 163, 164, 384
Climate Bonds Taxonomy of, 156
standards of, 156n3
Close-out netting, 205, 266, 384
CME, Treasury bond futures and, 149, 150f
CNH forward, 384
dim sum bonds and, 345f, 348
CNY/USD. See Chinese yuan/US dollar
Collateralized loan obligation, 184, 384
Collective investment scheme, 384
for credit bonds, 107
unified rule on, 221–22
Collin-Dufresne model, 112n9
Commercial paper, 384
default rate in, 25f
development of, 104
interbank bond market for, 136n9
issuance of, 102–3
MTN, 309
PBC and, 302t
STN, 11nl0, 249, 251t, 309, 313f
Common Principles for Climate Mitigation Finance Tracking, 156
Consumer price index (CPI)
CGBs yield curve and, 61, 62, 63f, 64, 81, 87t, 88f, 91f
interest rates and, 309
Corporate bonds, 11, 11n9, 384
block trade for, 135n8
credit risk of, 13, 52n2, 113
credit spreads for, 341
default rates for, 24, 25f
development of, 104
implicit guarantees for, 281–82
issuance of, 102–3
liquidity of, 13, 113, 260
MLF and, 226, 226n4
negotiable certificate of deposits and, 264
PBC and, 226
pricing of, 114–15, 114f
ratings for, 22
repos of, 226–27
summary statistics for, 120t
trading frequency of, 219
in US, 110, 110f, 260, 261, 262f
Corporate debt, 4
debt-equity swap for, 292
implicit guarantees and, 23
risk spreads and, 52, 53
Corporate dollar bonds
capital flows and, 358–59
carry trade and, 357, 367
corporate investment and, 366–68
data sources for, 360
exchange rate and, 365–66
GMM for, 367, 367nn4–5
issuance of, 358–59, 36l, 363, 3648f, 365–68, 372t–761t
leverage risk of, 358
macroprudential assessment for, 358
NDRC and, 357–58, 358n1
offshore bond market for, 29–30, 357–71
outstanding, 358–59, 359f
PBC and, 358
for real estate developers, 359
redemption of, 368–69, 378t
risk aversion with, 366
ROA of, 365
sectoral effect of, 368, 377t
for SOEs, 359, 363, 368
stylized facts on, 360–62
VIX on, 366
volatility of, 366
window guidance for, 363
Corporate Law
ABS and, 175
enterprise bonds and, 102
Counterparties, to foreign participation, 241
Counterparty risk, nominal interest rate and, 41n6
Covered bonds, 174, 385
green, 14, 155
CPI. See Consumer price index
Credit asset-backed securities, 170, 171t, 385
on interbank bond market, 182n10
issuance of, 186f
ratings for, 173f–182
Credit Asset Securitization Pilot Coordination Group, 175
Credit bonds, 11, 99–117, 100f, 385
benchmark rate for, 112–13, 112n10, 114f
Bond Connect and, 99, 99n1
collective investment scheme for, 107
credit risk of, 101, 113
credit spreads for, 110, 110f
data cleaning for, 119f
default rates for, 110–11, 111f
empirical analysis of, 112–15, 114f
first stage of, 103–4, 103f
foreign participation in, 99, 107
growth of, 99
implicit guarantees for, 111, 115–16
in interbank bond market, 105
investors in, 106t, 107, 116
issuance of, 105–7, 106f, 116, 217f
of LGFVs, 99, 115–16
liquidity of, 107–8, 108f–219–20
liquidity risk of, 101, 113
market segmentation for, 115
market structure and characteristics for, 101–4, 101f–3f
maturity of, 266
over-the-counter market for, 105
policy recommendations, 115–16
pricing in different markets for, 113–15, 114f
ratings for, 22, 99, 102–3, 108–10, 109f–110f–116
regression variables for, 118n
regulation of, 101–2
as repos, 108, 108n7, 220
second stage of, 103f–104
of SOEs, 13, 99, 100, 105–6, 115–16
sovereign bonds and, 112n10
summary statistics for, 119f
systemic risk factors of, 113
third stage of, 103f–104
trading platform for, 104–5, 105f
trading volume of, 221f
yields for, 121, 121t
See also Commercial paper; Corporate bonds; Enterprise bonds; Medium-term notes
Credit default swaps (CDS), 385
hedging on, 253–54, 266
by NAFMII, 266n9
outright repos and, 274
Credit-linked notes, 253, 266n9, 385
Creditor committees, 288, 292
Credit risk, 21
in bond market, 215, 249–52
of corporate bonds, 13, 52n2, 113
of credit bonds, 101, 113
of derivatives market, 273
financial stability and, 215
of foreign participation, 230
of government bonds, 123
of implicit guarantees, 220, 293
of local government bonds, 132–33, 136
of repos, 275
Credit risk mitigation agreement, 266n9, 385–86
Credit risk mitigation warrant, 266n9, 386
PBC and, 13
Credit spreads, 5, 6f
in bond market, 218–19, 219f
computation of, 283n3
for corporate bonds, 341
for credit bonds, 110, 110f
default rates and, 289–90, 289f, 290f
for SOEs, 283–84, 284f, 285f
Cross-currency swap, 235t–38t, 242, 386
CSRC See China Securities Regulatory Commission
CUFE. See Central University of Finance and Economics-CNI Green Bond Index
Currency baskets, CFETS and, 296n3
Currency bonds, IMF and, 273n14
Currency mismatch
dim sum bonds and, 344
with RMB, 201
Curvature, of yield curve, 58, 59f, 60, 60f, 85t
D
Daniel, J., 292
Davis, S.J., 347, 349, 365, 366
Debt-equity swaps, 386
for corporate debt, 292
of SOEs, 288
Debt financing instrument of nonfinancial enterprise, 11n10, 386
for green bonds, 159f–162
Debt Management Office, in UK, 134
Debt-swap program, for local government bonds, 125–26, 125n3, 132
Debt-to-GDP ratio, 4
Default rates, 20
for ABS, 189
in bond market, 24, 25f, 213–19, 218f, 284–90, 285f–90f
case studies of, 280
for corporate bonds, 24, 25f
for credit bonds, 110–11, 111f
credit spreads and, 289–90, 289f, 290f
for dim sum bonds, 351n20
for local government bonds, 133, 136
in private sector, 5, 5n5
ratings and, 286–87, 288f
for repos, 212
for SOEs, 286, 288
Delivery
of ten-year Treasury bond futures, 145
of Treasury bond futures, 143, 143n3
Delivery versus payment settlement, 229–30, 386
Deposit rate floating range, of PBC, 296n3
Derivatives markets
arbitrage and, 274
credit risk of, 273
foreign participation in, 235t-38t
hedging on, 202, 274
interest rates, 19, 235t-38t, 273
master agreements for, 204–5
open interest in, 140n1
price discovery in, 254
Dickey-Fuller-tested 5-minute price series, for Treasury bond futures, 146
Diebold, R, 62
Dim sum bonds, 28–29, 37n2, 386
arbitrage for, 341
Bank of China and, 339n9
CNH forward and, 345f, 348
currency mismatch and, 344
default rates for, 351n20
driving factors for, 347–53, 349t, 350t, 352f
exchange rate for, 344
for FDI, 343f, 348–49, 396
GDP growth and, 354
hedging of, 344, 351
industry profile of, 334–36, 337f
issuance of, 334, 335f, 336f, 339t, 344f, 345, 345f–47f, 347–53, 349t, 350t, 352f
liquidity of, 354
market structure, 333–37
maturity profile of, 336, 338f
for mergers and acquisitions, 339
near-term prospects of, 353–54
ODI of, 333, 342–43, 342f, 343n11, 343n12, 347, 348–49, 353f, 354
in offshore bond market, 333–54, 340t, 341f
outstanding, 334, 335f
PBC and, 339–40, 343
policy announcement on, 355t
policy uncertainty index for, 347, 347f, 349
ratings for, 339
real estate developers and, 336
SPV for, 336, 336n7
Treasury bonds and, 29n26
US dollar and, 344
Dollar. See US dollar
Double-taxation treaty (DTT), 233, 239t, 386
DR007, 299, 309, 310, 386–87
PBC and, 302t
DTT. See Double-taxation treaty
Dual green, 161, 161n, 11
E
ECB. See European Central Bank
Economic Policy Uncertainty, 349, 349n17, 365
EFR See Exchange-for-physical
EGARCH. See Exponential generalized autoregressive conditional heteroskedasticity model
Encumbered asset pool, 160, 160n9
Enterprise asset-backed securities 169–70, 171t, 387
issuance of, 186f
ratings for, 173f
Enterprise Bankruptcy Law, 24n20, 291–92
Enterprise bonds, 11, 387
benchmark rate and, 13
default rates in, 25f
development of, 103–4, 103f
interbank bond market for, 136n9
issuance of, 102–3, 103n3
of LGFVs, 104, 106–7, 114
liquidity of, 13
pricing of, 114–15, 114f
ratings for, 22, 103n3
regulation of, 101–2
of SOEs, 13, 104, 106
summary statistics for, 120t
trading frequency of, 219
Entrusted investment fund, 387
ETF. See Exchange-traded fund
European Central Bank (ECB)
RMB and, 16
social media at, 307f
European Investment Bank, 163
Excessive reserve rate, PBC and, 301t
Exchange bond market, 387
ABS in, 178, 189
corporate bonds in, 104
credit bonds in, 104–5
enterprise bonds in, 102
local government bonds in, 133, 136, 136n9
panda bonds in, 104
QFII in, 135n8, 211
RQFII in, 135n8, 211
Exchange-for-physical (EFP), 387
for Treasury bond futures, 151, 151n9
Exchange for risk, for Treasury bond futures, 151
Exchange for swap, for Treasury bond futures, 151, 151n10
Exchange rate
bond market and, 24–25
corporate dollar bonds and, 365–66
for dim sum bonds, 344
for RMB, 333, 354, 361f
Treasury bond futures and, 151
for US dollar, 42–5, 44f
See also Nominal effective exchange rate
Exchange-traded fund (ETF), 167, 232f, 387
Exchange Volatility Index (VIX), of
Chicago Board Options Exchange, 9, 41, 62, 396
on corporate dollar bonds, 366
global financial crisis and, 66
Exponential generalized autoregressive conditional heteroskedasticity model (EGARCH), 314–15, 324t, 325t, 388
Export-Import Bank, policy bank bonds of, 10, 393
Exposure limits, for foreign participation, 241
F
Fannie Mae. See Federal National Mortgage Association
Fargher, N, 351n20
FDI. See Foreign direct investment
Federal countries, 128n4, 387–88
Federal National Mortgage Association (Fannie Mae), in US, 156, 174n4
Federal Open Market Committee, in US, 315
Federal Reserve, US, 26, 41–42, 296, 305n12
balance sheet of, 42n7, 43f
policy normalization of, 41, 215
social media at, 307f
Fernald, J., , 71
Financial bonds, 13, 104, 388
Financial cycle, 388
bond market and, 45, 46f
capital inflows and, 45, 46f
yield curve and, 6
Financial Sector Assessment Program, of IMF, 27
Financial stability, of bond market, 20–21, 211–28, 269–72, 270f–72f
Fiscal budgets, 10, 10n7
Fiscal risks, 11
of local government bonds, 123, 125, 127f–128, 137, 282
Five-year Treasury bonds futures, 139
cash prices, 142f
contract specifications, 153t
Granger causality for, 147t
historical pricing for, 141
liquidity of, 129n5
open interest in, 141f
in US, 149
yields for, 146
Forbes, K., 41
Foreign direct investment (FDI), 37f
dim sum bonds for, 343f, 348–49, 396
IMF and, 15
Foreign exchange and interest rate derivative, 19, 206, 235t-38t, 241, 388
Foreign participation
in bond market, 15–18, 33–36, 35f–77f, , 198–200, 200f, 229–55, 230f, 232f, 247t
clearing roadblocks to, 229–55
counterparties to, 241
in credit bonds, 99, 107
credit risk of, 230
in derivatives markets 235t-38t
exposure limits for, 241
in hedging 240–43, 275–76
liquidity and, 275–76
in repos, 235t
in stock market, 33–36, 35f–37f
taxes and, 231–34, 239–40, 239t
See also Qualified Foreign Institutional Investor; Renminbi Qualified Foreign Institutional Investors
Forward foreign exchange contract, 40, 40n4
in RMB, 40n5
Forward rate agreement, 235t–38t, 242, 388
FR007, 302t
Fratzscher, M., 41, 366
FTSE World Government Bond Index (WGBI), 17, 383, 388
Futures
on CGBs, 274
See also Treasury bond futures
G
Gang Fan, 306
GAO, Q., 112
Gaon, S., 174n5
GARCH. See Generalized autoregressive conditional heteroskedasticity model
Garcia-Herrero, A., 306
Garrido, J., 292
GBI-EM. See JP Morgan Government Bond Index-Emerging Markets
GDP growth, 4
dim sum bonds and, 345, 354
PBC and, 297
Generalized autoregressive conditional heteroskedasticity model (GARCH), 314, 388
Generalized method of moments (GMM), 367, 367nn4–5
General Public Budget, 10n7
Girardin, E., 306
Global Aggregate Index, 17, 17n13, 200, 229–30, 381–82
policy bank bonds in, 3
Global Bond Index-Emerging Markets, 230
Global custodian bank, 240, 242, 389
Global financial crisis
ABS and, 179–80
CGBs yield curve and, 61–62, 65–68, 66f–70f 88f–94f, , 95t, 96t
macroprudential frameworks and, 193
monetary policy after, 295
GMM. See Generalized method of moments
Going out policy, 343, 343n12
Government bonds, 8–11
credit risk of, 123
hedged yield for, 40, 40f
liquidity of, 259–60
maturity of, 266
negotiable certificate of deposits and, 264
SDRs and, 16
in US, 260, 261f, 262f
yield curve of, 38–39, 39f, 267
See also China government bonds; Local government bonds
Government Finance Statistics Manual (IMF), 137
Government guided fund, 136, 389
Government-managed-fund budget, 10n8
Government Work Plan, 72
Grandfather clauses, implicit guarantees and, 293
Granger causality, 389
for Treasury bond futures, 146, 146n6, 147t
Green Bond Assessment and Verification Guidelines, 162–63
Green Bond Endorsed Project Catalogue, 156, 161
Green Bond Principles, of ICMA, 156
Green bonds, 14–15, 155–68, 389
as ABS, 157
defined, 155–56, 156n4
global market for, 156–57
in Hong Kong SAR 157
incentives for, 165–66
indices, 158–59
interest rates and, 157
international cooperation with, 163–64, 167
investors in, 166–67
issuance of, 157, 158f, 159f, 165
liquidity of, 164
policies and regulations for, 161–63
product innovation, 159–61, 166
risks with, 164
in RMB, 157, 161
standards for, 165
in US, 156
use of, 160f
Green Corporate Bond Index, of Shanghai Stock Exchange, 158
Green covered bonds, 389
as ABS, 155, 155n1
Green Finance Committee, of China Society for Finance and Banking, 14, 155, 156, 163
Green Securities Exchange Bond Index, 158
Green washing, 156, 156n2, 164
Gross settlement method, 203
Group of Twenty, 156
Guidance on Enterprise Bond Management, 102
Guideline on Corporate Issuance and Trading, 102
Guidelines for Establishing the Green Financial System, 161
Guidelines for Non-financial Enterprise to Issue Green Debt Financing Tools, 162
Guidelines to Support the Development of Green Bonds, 162
Gürkaynak, R. S., 305n12
H
Hansen, S., 305n12
Harvest Capital CECEP Green Building Asset Backed Special Plan, Shenzhen Stock Exchange and, 161
HE, D., 40n5, 345
Hedged yield, for government bonds, 40, 40f
Hedge funds
in bond market, 276
Treasury bond futures in, 143
Hedge interest rate risks, of Treasury bond futures, 147
Hedging
on bond market, 201–2, 265–68
on CDS, 253–54, 266
on derivatives markets, 202
of dim sum bonds, 344, 351
foreign participation in, 240–43, 275–76
on interest rates, 242
IRS and, 265–66
limits to, 20
price discovery and, 206
Hong Kong Monetary Authority (HKMA), 382
Hong Kong SAR
Bond Connect and, 99w1, 211n1
Central Moneymarkets Unit and, 337, 338f, 382
CIBM and, 199
dim sum bonds in, 333–54
green bonds in, 157
ISDA and, 241
ODI in, 333
offshore bond market for, 28–29, 37n2
RMB in, 198
Treasury bonds in, 29n27
Hong Kong Stock Exchange, 163
HSBC, panda bonds of, 198
HUANG, Y., 367
Huber-White sandwich estimator, 312, 389
I
ICMA. See International Capital Market Association
IFRS. See International Financial Reporting Standards
IMF. See International Monetary Fund
Implicit guarantees
in bond market, 12, 21, 22, 23–24, 217–18, 279–94
careful sequencing of reforms of, 293–94
for corporate bonds, 281–82
corporate debt and, 23
for credit bonds, 111, 115–16
credit risk of, 220, 293
liquidity and, 269
for local government bonds, 282–83
of negotiable certificate of deposits, 268
repos and, 293
for SOEs, 279, 283–84
tapering, 279–94
unwinding of, 290–94
Industrial and Commercial Bank of China
ABS and, 174
green bonds and, 163
Industrial Bank, green bonds and, 158, 159
Inflation
CGBs yield curve and, 81
policy rate and, 61
Inflation targeting, 47n9, 297, 389
Insurance asset-backed securities, 171t, 389
Insurance funds
in bond market, 276
credit bonds in, 107
local government bonds in, 132
Treasury bond futures in, 150
Interbank bond market, 7
ABS in, 170, 170n1, 175, 189
Belt and Road Initiative and, 18
Bond Connect for, 211
commercial paper in, 136n9
credit ABS in, 182n10
credit bonds in, 105
enterprise bonds in, 102, 136n9
financial bonds in, 13
local government bonds in, 133, 136, 136n9
of PBC, 22
QFII in, 15–16
repos in, 263, 264f
See also China Interbank Bond Market
Interbank Bond Market Nonfinancial Firms Financial Tools, enterprise bonds and, 102
Interest rates
bond market and, 215
derivatives markets, 19, 235n–38t, 273
green bonds and, 157
hedging on, 242
monetary policy and, 71, 72, 74–75, 271–72
PBC and, 300
repos and, 271, 273f
Treasury bond futures and, 150, 151
in US, 362f
yield curve and, 25
See also Nominal interest rate; Short-term interest rate
Interest rate swaps (IRS), 252–53, 253f, 389
hedging and, 265–66
Shibor and, 266
strengthening of, 275
Intergovernmental relations, 11, 137, 390
International Capital Market Association (ICMA), 390
Green Bond Principles of, 156
International Development Finance Club, 390
Common Principles for Climate Mitigation Finance Tracking and, 156
International Finance Corporation, 198
International Financial Reporting Standards (IFRS), 204
for CGB futures, 274
International Institute of Green Finance, 159
International Monetary Fund (IMF)
balance of payments and, 35
on CGBs liquidity, 57
currency bonds and, 273n14
FDI and, 15
Financial Sector Assessment Program of, 27
on implicit guarantees, 293
on local government bonds, 137, 283
on macroeconomic variables, 352n21
on portfolio flows, 43n7
SDRs of, 395
International Swaps and Derivatives Association (ISDA), 19
Master Agreement of, 204–5, 241, 391
Investment vehicles, 20, 21, 390
Investors
in bond market, 223n
in credit bonds, 106n, 107, 116
in green bonds, 166–67
in local government bonds, 132, 135, 135n8
in repos, 224–25, 224f
in Treasury bond futures, 143–44, 144, 149–51
See also Foreign participation
IRS. See Interest rate swaps
ISDA. See International Swaps and Derivatives Association
J
J.P Morgan Emerging Markets Bond Index Global, 35n1
JP Morgan Government Bond Index-Emerging Markets (GBI-EM), 17, 200, 391
K
Kalotay, E., 351n20
Kernel density, of short-term notes, 310, 311f
Kohn, D. L, 305n12
Kopeke, R, 43n7
L
Law of the People’s Republic of China, 297
Legal system
ABS and, 187
for bond market, 203–5
Letters of comfort, 12
Level, of yield curve, 58, 59, 59f, 60f, 64, 85f
Leverage risk
of bond market, 225
of corporate dollar bonds, 358
LGFVs. See Local government financing vehicles
LIBOR See London interbank offered rate
LI Keqiang, 3
Liquidity
of ABS, 187
Basel III liquidity coverage ratio, 213
in bond market, 21, 52–54, 201–2, 215, 221f, 222f, 225–26, 257–59, 258f, 259f, 260n5, 273–76
of CGBs, 56–57
in CGBs yield curve, 51
of corporate bonds, 13, 113, 260
of credit bonds, 107–8, 108f–219–20
of dim sum bonds 354
of enterprise bonds 13
of five-year Treasury bonds 129n5
foreign participation and, 275–76
of government bonds 259–60
of preen bonds, 164
implicit guarantees and, 269
of local government bonds 11, 128–31, 131n6, 135
of negotiable certificate of deposits, 268
PBC and, 51, 54, 73, 73f
policies for, 273–76
of policy bank bonds, 10, 56–57, 79, 79f
of repos, 270, 271, 271f, 272f
short-term interest rates and, 25
strengthening of, 275–76
of ten-year Treasury yield, 129n5
of Treasury bond futures, 144–45, 243f, 244–45, 244f
in US, 260, 260n4, 261f
See also Short-term liquidity operations
Liquidity coverage ratio rule, 213
Liquidity risk
in bond market, 219–25, 223f
of credit bonds, 101, 113
financial stability and, 215
Liquidity spiral, 271n13
Local government bonds, 10–11
credit risk of, 132–33, 136
debt management capacity for, 133–34, 137
debt-swap program for, 125–26, 125n3, 132
default rates for, 133, 136
early-warning system for, 128
exchange bond market for, 133, 136, 136n9
fiscal reforms for, 136–37
fiscal risks of, 123, 125, 127f, 128, 137, 282
growth of, 123
implicit guarantees for, 282–83
infrastructure for, 134
interbank bond market for, 133, 136, 136n9
intergovernmental reforms for, 137
investors in, 132, 135, 135n8
issuance of, 126
lack of disclosure with, 133
liquidity of, 128–31, 131n6, 135
moral hazard with, 133
obstacles of, 128–34, 129f
OECD and, 126–28, 127f
off-budget borrowing for, 136
over-the-counter market for, 133
ratings for, 126, 132 33
recent developments in, 124f, 125–28, 126f, 127f
regulation of, 130f–3U 132f, 133, 133n7, 136
revised budget law for, 125, 128
in RMB, 125–26, 125n3
State Council and, 282
taxes and, 133, 136
Local government debt bond-swap program, 282, 391
Local government financing vehicles (LGFVs, chengtou zhai), 4–5, 4n2, 123, 125, 391
credit bonds of, 99, 115–16
enterprise bonds of, 11, 104, 106–7, 114
as government debt, 106–7, 107n6
for infrastructure, 125n2
local government bonds and, 10
of SOEs, 12, 12n11, 281–82
Lo Duca, M., 41
London interbank offered rate (LIBOR), 40, 252, 391
London Stock Exchange Group (LSEG), 383
Longstaff-Schwartz model, 112n9
Loss spiral, 271 n13
LSEG. See London Stock Exchange Group
Luangaram, P., 306
Luk, P., 345
M
M2, 25, 391
monetary policy for, 298, 298f
shocks to, 71
MA, G., 40n5, 71
Macroeconomic variables
CGBs yield curve and, 62–64
IMF on, 352n21
Macroprudential frameworks
for corporate dollar bonds, 358
global financial crisis and, 193
for green bonds, 165
for systemic risks, 30
Margin spiral, 271 n13
Master Agreement
of ISDA, 204–5, 241, 391
of NAFMII, 204–5, 392
Maturity mismatches
of credit bonds, 213
of green bonds, 165
of shadow banks, 215
McCauley, R, 40n5
McDonald’s, 337
McMahon, M., 305n12
Measures for the Administration of Trust Companies, ABS and, 175
Medium-term commercial paper (MTN), 309
Medium-term lending facility (MLF), 300, 310, 391
corporate bonds and, 226, 226n4
PBC and, 301t
Medium-term notes, 11, 392
default rates in, 25f
development of, 104
issuance of, 102–3
PBC and, 302t
Mergers and acquisitions
dim sum bonds for, 339
ODI for, 343n12
Merton model, 112n9
Ministry of Commerce, dim sum bonds and, 341
Ministry of Finance
ABs and, 183
bond market and, 226
dim sum bonds and, 334
LGFVs and, 12
local government bonds and, 125, 133–34, 133n7
panda bonds and, 198
SDRs and, 16
taxes and, 19n16, 233
Treasury bond futures and, 149
Mizen, P., 345n15
MLF. See Medium-term lending facility
Monetary policy, 301 t-2t
autonomy of, 7
bond market and, 26
for bond market liquidity, 21
CGBs yield curve and, 64–65
communication of, 295–321, 312f, 313f–321t
hybrid, 299–300, 303f
interest rates and, 71, 72f, 74–75, 271–72
for M2, 298, 298f
National People’s Congress and, 297
nominal interest rate and, 74
normalization of, 6
OMOs and, 299, 305, 305n10, 315–19, 317f, 326t–28t, 392–93
of PBC, 71–75, 72f–74f
policy bank bonds and, 10
policy rate and, 308f
press releases on, 303
recommendations, 319–20
speeches on, 303–5, 303n9
State Council and, 297
of US, 41–42, 215
Monetary Policy Committee, 306, 310
Monetary Policy Executive Report (MPER), 26, 26n23, 299, 303, 307
short-term notes and, 313
Moral hazard, with local government bonds, 133
Moretti, M., 292
Morgan Stanley Capital International Emerging Markets Index (MSCI), 42n7
MPER. See Monetary Policy Executive Report
MSCI. See Morgan Stanley Capital International Emerging Markets Index
MSCI index, 35, 35n1
MTN. See Medium-term commercial paper
Multitier custodian model, 19, 199, 202, 206, 392
Municipal Securities Rulemaking Board, in US, 134
Mutual funds, 392
in bond market, 276
dim sum bonds in, 337
local government bonds in, 132
taxes and, 231
Treasury bond futures in, 150
N
National Association of Financial Market Institutional Investors (NAFMII), 19–20, 381, 383
ABN and, 171t
ABS and, 170, 181
CDS by, 266n9
commercial paper and, 104, 384
enterprise bonds and, 102
green bonds and, 162
interest rate hedging and, 242
Master Agreement of, 204–5, 392
medium-term notes and, 11, 104, 391
for over-the-counter market, 204n5
private placement notes of, 393
National Development and Reform Commission (NDRC)
corporate dollar bonds and, 357–58, 358n1
enterprise bonds and, 11, 102, 103–4
LGFVs and, 12
local government bonds and, 133n7
offshore bond market and, 37n2
panda bonds and, 198
ratings agencies and, 22
National People’s Congress
local government bonds and, 10, 125, 125n3, 283
monetary policy and, 297
NDFs. See Nondeliverable forwards
NDRC. See National Development and Reform Commission
Nedeljkovic, M., 352n21
The Need for a Common Language in Green Finance-A White Paper, , 163
NEER See Nominal effective exchange rate
Negotiable certificate of deposits, 264
implicit guarantees of, 268
liquidity of, 268
Nelson-Siegel model, 58
Net asset value accounting, 275, 275n19
Ng, B., 306
Nominal effective exchange rate (NEER), 392
for RMB, 344f, 348, 349
Nominal interest rate
counterparty risk and, 41n6
monetary policy and, 74
uncovered interest rate parity and, 43n8
Nondeliverable forwards (NDFs), 40n4
Norman, Montagu, 295
O
ODI. See Outward direct investment
OECD. See Organisation for Economic Co-operation and Development
Off-budget borrowing, for local government bonds, 136
Official Purchasing Managers Index, 309
Offshore bond market, 27–30
for corporate dollar bonds, 29–30, 357–71
dim sum bonds in, 333–54, 340t, 341f
for Hong Kong SAR, 28–29, 37n2
Offshore spot market, 240–41
Ohnsorge, R, 40n5
OLS. See Ordinary least squares
OMOs. See Open market operations
Open interest, 392
in derivatives markets, 140n1
in five-year Treasury bond futures, 141f
in ten-year Treasury bond futures, 140, 141f
in Treasury bond futures, 140, 140f, 143–44, 144f
in two-year Treasury bond futures, 140
Open market operations (OMOs), 299, 301t, 305, 305n10, 317f, 326t–28t, 393
impact of, 315–19
Operational Rules for the registration, Custody and Clearing of Asset-Backed Securities (CCDC), 178–79
Ordinary least squares (OLS), for monetary policy communication, 310–13, 322t–23t
Organisation for Economic Co-operation and Development (OECD), 126–28, 127f
Outright repos, 273, 273n16
CDS and, 274
Outward direct investment (ODI)
of dim sum bonds, 333, 342–43, 342f, 343n11, 343n12, 347, 348–49, 353f, 354
in Hong Kong SAR, 333
for mergers and acquisitions, 343n12
Over-the-counter market, 7
for credit bonds, 105
for local government bonds, 133
NAFMII for, 204n5
P
Panda bonds, 16, 198, 393
accounting standards for, 204
corporate bonds and, 104
taxes and, 233
Panizza, U., 367
Party Congress, green bonds and, 155
PBC See People’s Bank of China
Pedersen, L. H., 271n13
Pension funds
in bond market, 276
credit bonds in, 107
local government bonds in, 132
Treasury bond futures in, 149
People’s Bank of China (PBC)
ABS and, 15, 175, 182, 183
Administrative Measures for the Credit Asset Securitization Pilot Program of, 176–77
benchmark rate of, 75, 301f
bond market and, 26–27
Central Economic Work Conference of, 309
CFETS and, 383
CNY/USD and, 296n3
corporate bonds and, 226
corporate dollar bonds and, 358
credit bonds and, 115
Credit Risk Mitigation Warrants and, 13
deposit rate floating range of, 296n3
dim sum bonds and, 339–40, 343
enterprise bonds and, 102, 103
financial bonds and, 13
GDP growth and, 297
green bonds of, 14, 156, 162–63
interbank bond market of, 22
interest rates and, 300
IRS and, 252
liquidity and, 51, 54
medium-term notes of, 11
MLF of, 391
monetary policy of, 71–75 72f–74f, 295–321, 301t–2t
OMOs by, 299, 305, 305n10, 315–19, 317f, 326t-28t, 392–93
panda bonds and, 198
Politburo and, 309n14
PSL of, 393
reserve requirements of, 71
short-term interest rates by, 297, 298–99
short-term money market rates of, 298–99, 309, 310
SLO of, 394
social media at, 26, 307f
standard lending facility of, 395
taxes and, 233
TMLF of, 395
transparency of, 305, 309, 311n15
Treasury bond futures and, 151
window guidance by, 71, 309
Work Conference of, 297
See also National Association of Financial Market Institutional Investors
Philips curve, 54, 54n3
Pledged supplementary lending (PSL) 310, 393
PBC and, 301t
PMI. See Purchasing Managers Index
Policy bank bonds, 10, 225, 393
bid-ask spreads for, 267–68
in Bloomberg Barclays Global Aggregate Index, 3
CGBs yield curve and, 76–81, 77–85f
liquidity of, 56–57, 79, 79f
shocks and, 80
Policy banks, 54, 76, 393
Policy rate, 75, 252
benchmark rate as, 65
inflation and, 61
monetary policy and 308f
yield curve for, 62
Policy uncertainty index, for dim sum bonds, 347, 347f, 349
Politburo, PBC and, 309n14
Porter, N., 53
Portes, R, 367
Portfolio flows, 42–43, 43n7
PPI. See Producer price index
PPP See Public-private partnership
Price discovery 274
for CGBs 69
in derivatives markets, 254
hedging and, 206
for Treasury bond futures 13, 146
Private placement notes 11n10, 104n4, 393
corporate bonds and, 104
Producer price index (PPI) CGBs yield curve and, 62, 64
Provisional Measures for the Administration of Capital Trusts of Trust Companies, ABS and, 175
PSL. See Pledged supplementary lending
Public-private partnership (PPP), 183
Purchasing Managers Index (PMI), 309
Push factors, 41, 42n7
Q
Qualified Foreign Institutional Investor (QFII), 15–16, 203, 393
in exchange bond market, 135n8, 211
interest rate hedging and, 242
for Treasury bond futures, 150–51
See also Renminbi Qualified Foreign Institutional Investors
Quasi-government bonds, 8–11
Treasury bond futures and, 147
Quasi-REITs, 181, 184
R
R007, 309
PBC and, 302;
Ratings (rating agencies)
for ABS, 170, 176, 178–79, 184–85, 188, 190t
in bond market, 22–23, 23n19, 218–19, 249–52, 250t, 251t
for corporate bonds, 22
for credit ABS, 173f, 182
for credit bonds, 22, 99, 102–3, 108–10, 109f, 110f, 116
default rates and, 286–87, 288f
for dim sum bonds, 339
for enterprise ABS, 173f
for enterprise bonds, 22, 103n3
for local government bonds 126, 132–33
Real estate developers
corporate dollar bonds for, 359
dim sum bonds and, 336
Real estate investment trust (REIT), 181, 183, 184, 394
Reeves, R, 305n12
Registration-based regulation, 381, 394
REIT. See Real estate investment trust
Renminbi (RMB), 3
in bond market, 199–205
currency mismatch with, 201
exchange rate for, 333, 354, 361f
forward foreign exchange contract in, 40n5
in global bond indices, 17–18, 17n13
green bonds in, 157, 161
in Hong Kong SAR, 198
local government bonds in, 125–26, 125n3
NEER for, 344f–348, 349
panda bonds and, 104
as reserve currency, 16
in SDRs, 16, 17f–197, 198
Treasury bond futures in, 147, 150
US dollar and, 240
See also Dim sum bonds
Renminbi Qualified Foreign Institutional Investors (RQFII), 16, 198, 203, 394
in exchange bond market, 135n8, 211
interest rate hedging and, 242
for Treasury bond futures, 150–51
Repurchase agreements (repos), 394
CGBs yield curve and, 65–66
of corporate bonds, 226–27
credit bonds as, 108, 108n7, 220
credit risk of, 275
default rates for, 212
foreign participation in, 235t-38t
implicit guarantees and, 293
in interbank bond market, 263, 264f
interest rates and, 271, 273f
investors in, 224–25, 224f
liquidity of, 270, 271, 271f, 272f
maturity of, 270–71, 272f
OMOs for, 299
outright, 273, 273n16, 274
by PBC, 301t
Sealand Securities and, 20, 212
seven-day rate, 65–66, 74f, 299, 299n8
trading volume of, 222f, 264f
tri-party, 274n18
Required reserve ratio, PBC and, 301t
Reserve currency, RMB as, 16
Reserve requirements, 394
lowering, 5n6
of PBC, 71
Return on assets (ROA)
of corporate dollar bonds, 365
of SOEs, 284n4
Reverse-repo rate, 25
OMOs for, 299
Revised budget law, for local government bonds, 125, 128
RHZL, 161
Risk aversion, 41–42, 42n7
with corporate dollar bonds, 366
Risk spreads, corporate debt and, 52, 53
RMB. See Renminbi
ROA. See Return on assets
Rollover risk, 215–16, 216f
RQFII. See Renminbi Qualified Foreign Institutional Investors
Rudebusch, G., 62
S
Saborowski, C, 352n21
Sack, B. P., 305n12
SAFE. See State Administration of Foreign Exchange
Sanya Municipal Development
Construction Company, 173–74
Sawicki, M, 305n12
SDRs. See Special drawing rights
Sealand Securities, 20, 212
Securities and Exchange Commission, US, 101, 134
Securities Investment Fund Law, 187
Securities Law, enterprise bonds and, 102
Semantic orientation, 306
Settlement period, in bond market, 203
Settlement price, for Treasury bond futures, 141, 142f
Seven-day repo rate, 65–66, 74f, 299, 299n8
Seven-year Treasury bond futures
trading volume of, 144, 145nn4–5
yields for, 146, 146f
Shadow banks, 220, 341
maturity mismatches of, 215
Shanghai Chaori Solar Technology, 280
Shanghai Clearing House (SHCH), 201, 202, 383, 394
ABS and, 181
Shanghai interbank offered rate (Shibor), 383, 391, 394
IRS and, 252, 266
PBC and, 302t
Shanghai Stock Exchange, 201
ABS on, 183
Green Corporate Bond Index of, 158
PBC and, 302t
SHCH. See Shanghai Clearing House
Shenzhen Stock Exchange, 159, 201
ABS on, 183
Harvest Capital CECEP Green Building Asset Backed Special Plan and, 161
Shibor. See Shanghai interbank offered rate
Shin, H. S., 365
Shocks
to CGBs yield curve, 63–64, 65f
to M2, 71
policy bank bonds and, 80
See oho Global financial crisis
Short-term commercial paper (STN), 11n10, 249, 251t, 309, 313f
Short-term interest rate
CGBs and, 71
liquidity and, 25
by PBC, 297, 298–99
Short-term liquidity operations (SLOs), 309–10, 395
PBC and, 301n
Short-term money market rates, by PBC, 298–99, 309
Short-term notes
kernel density of, 310, 311f
MPERs and, 313
volatility of, 313, 314–15
SHU, C, 306
Sichuan Coal Industry Group, 288
Simple correlation, for government yield curve, 61–62, 61t, 62f
Single-tier custodian model, 199, 202, 392
SinoMach, 288
SLF. See Standing lending facility
Slope, of yield curve, 58, 59, 59f, 60f, 64, 85n
SLOs. See Short-term liquidity operations
Social media, at PBC, 26, 307f
Social Security Fund Budget, 10n7
SOEs. See State-owned enterprises
Sovereign bonds, 8–9
credit bonds and, 112n10
yield curve for, 51–70, 71
Sovereign green bonds, 157
Special construction funds, 133n7, 283, 395
Special drawing rights (SDRs), 395
RMB in, 16, 17f
Special purpose vehicle (SPV), 174–75, 385, 395
for dim sum bonds, 336, 336n7
taxes and, 187
Spiegel, M., 71
SPV. See Special purpose vehicle
Standing lending facility (SLF), 309, 395
PBC and, 301t
State Administration of Foreign Exchange (SAFE), 336n7, 343, 395
State Administration of Taxation, 19n16
State Capital Operation Budget, 10n7
State Council
ABS and, 175
benchmark rate and, 297
enterprise bonds and, 103
green bonds and, 162
local government bonds and, 282
monetary policy and, 297
NAFMII and, 204n5
State-owned enterprises (SOEs), 5
corporate dollar bonds for, 359, 363, 368
credit bonds of, 99, 100, 105–6, 115–16
credit spreads for, 283–84, 284f, 285f
debt-equity swaps of, 288
default rates for, 286, 288
enterprise bonds of, 11, 13, 104, 106
implicit guarantees for, 279, 283–84
LGFVs of, 12, 12n11, 281–82
ROA of, 284n4
STN. See Short-term commercial paper
Stock market
capitalization and bank assets of, 34, 34f
foreign participation in, 33–36, 35f–37f
Hong Kong Stock Exchange, 163
LSEG, 383
See also Shanghai Stock Exchange; Shenzhen Stock Exchange
Straub, R., 41
SUN, G., 35n1
SUN, R, 306
Swanson, E., 71, 305n12
T
Targeted medium-term lending facility (TMLF), 395
PBC and, 301t
Taxes
ABS and, 187
bond market and, 19, 19n16, 204
foreign participation and, 231–34, 239–40, 239t
local government bonds and, 133, 136
mutual funds and, 231
SPV and, 187
Ten-year Treasury bond futures
cash prices, 142f
contract specifications, 153t
delivery of, 145
global financial crisis and, 66
Granger causality for, 147t
hedge interest rate risks of, 147
liquidity of, 129n5
open interest for, 140, 141f
trading volume of, 145, 145nn4–5
in US, 149
yields for, 146, 146f
Text classification, 306
Three Gorges Hydraulic Project, enterprise bonds for, 103
TMLF. See Targeted medium-term lending facility
Tobin’s Q, 365, 366, 367
TONG, M., 305n12
Total return swap, 231, 248, 395
Transparency, 192, 208
of ABS, 183
at PBC, 305, 309, 311w15
of Treasure bond futures, 146
Treasury bond futures, 13–14, 139–52
arbitrage for, 145
bid-ask spreads for, 145
block trade for, 151, 151n8
CME and, 149, 150f
contract specifications, 153t
delivery of, 143, 143n3
Dickey-Fuller-tested 5-minute price series for, 146
diversifying product offerings, 149
diversifying trading mechanisms for, 151
ETP for, 151, 151n9
exchange for swap for, 151, 151n10
exchange rate and, 151
Granger causality for, 146, 146n6, 147t
hedge interest rate risks of, 147
historical pricing, 141–43, 142f
interest rate hedging and, 242
interest rates and, 150, 151
investors in, 143–44, 144, 149–51
liquidity of, 243f, 244–45, 244f
open interest in, 140, 140f, 143–44, 144f
PBC and, 302t
QFII for, 150–51
in RMB, 147, 150
RQFII for, 150–51
settlement price for, 141, 142f
subscriptions for, 147–48, 148t
trading volume, 140, 140f
yields for, 146, 146f
See also Seven-year Treasury bond futures; Ten-year Treasury bond futures; Two-year Treasury bond futures
Treasury bonds
dim sum bonds and, 29n26
in Hong Kong SAR, 29n27
yield curve for, 62–63
Tri-party repos, 274n18
Trust Law, 175
Trust model, for ABS, 174n4
Tsoukas, S., 345n15
Two-year Treasury bond futures, 139
contract specifications, 153t
historical prices, 143
open interest for, 140
in US, 149
U
UK. See United Kingdom
Ultra Treasury bonds, 149
Uncovered interest rate party, 43, 43n8
Unilever, 337
Unitary countries, 128n4, 387–88
United Kingdom (UK)
China-United Kingdom Economic and Financial Dialogue, 160
China-United Kingdom Green Finance Taskforce, 163
Debt Management Office in, 134
Economic Policy Uncertainty for, 349n17
See also Bank of England
United States (US)
corporate bonds in, 110, 110f, 260, 261f, 262f
Economic Policy Uncertainty for, 349n17
Fannie Mae in, 156, 174n4
Federal Open Market Committee in, 315
five-year Treasury bonds futures in, 149
government bonds in, 260, 261f, 262f
green bonds in, 156
interest rates in, 362f
liquidity in, 260, 260n4, 261f
monetary policy of, 41–42, 215
Municipal Securities Rulemaking Board in, 134
OMOs and, 299
Securities and Exchange Commission in, 101, 134
ten-year Treasury bond futures in, 149
two-year Treasury bond futures in, 149
See also Federal Reserve
Urban construction bonds (chengtou bonds), 12, 12n11, 281, 382–83
US. See United States
US dollar
CNY/USD and, 296n3
dim sum bonds and, 344
exchange rate of, 42–45, 44f
RMB and, 240
See also Corporate dollar bonds
V
VIX. See Exchange Volatility Index
Volatility
of corporate dollar bonds, 366
financial stability and, 20
monetary policy communication and, 314–15, 316f
MPER and, 26
of short-term notes, 313, 314–15
See also Exchange Volatility Index
W
Warnock, F, 41
WGBI. See Citigroup World Government Bond Index; FTSE World Government Bond Index
WIND Economic Database, 58
default rates in, 290
Window guidance, 396
for corporate dollar bonds, 363
by PBC, 71, 309
Wongwachara, W., 306
Work Conference, of PBC, 297
World Bank
dim sum bonds and, 347
panda bonds and, 198
World Global Bond Index, 230
X
Xiaochuan Zhou, 306
XI Jinping, 3, 4n4
Belt and Road Initiative and, 18n15
green bonds and, 155
Xingye Credit Spreads, 283n3
Xinjiang Liushi State Capital Operating Co., 12n11, 282n1
Y
Yangtze River Economic Belt Water Resources Protection, 160
Yield curve, 396
for ABS, 179
for CGBs, 275
curvature of, 58, 59f, 60, 60, 85t
financial cycle and, 6
for government bonds, 38–39, 39f, 267
interest rates and, 25
level of, 58, 59, 59f, 60, 64, 85t
for policy rate, 62
slope of, 58, 59, 59f, 60f, 64, 85t
for sovereign bonds, 51–70, 71
strengthening of, 274–75
for Treasury bonds, 62–63
See also China government bonds
Z
Zhang, W, 345
ZHAO, L., 365
ZhejiangTailong Commercial Bank, 161
Zhuhai Expressway Company Limited, 174
ZOU, H. F., 112