China Bond 50 index rises; PBoC holds MLF rate 

Other ATF indices remain steady as PBoC move signals Loan Prime Rate will be kept on hold

China Bond 50 index rises; PBoC holds MLF rate 
The ATF China Bond 50 Index climbed 0.04%.

(ATF) ATF’s flagship index, the China Bond 50 index, rose on Wednesday by 0.04%, while the other ATF indices held more or less steady. The ATF ALLINDEX Corporates, Enterprise and Financial dipped slightly, by 0.03%, 0.02%, and 0.01% respectively, while the ATF ALLINDEX Local Governments gained 0.01%.

Within the China Bond 50 index, the biggest gains were seen in the debt of the Export-Import Bank of China (0.47%), China Development Bank (0.14%), Bank of Hangzhou (0.11%), and China Citic Bank (0.24%). Meanwhile, notable losses were apparent in the bonds of Bank of Communications (-0.32%), Huishang Bank (-0.18%) and Xiamen International (-0.11%).

The ALLINDEX Corporates Index fell 0.03%.

On Wednesday, the People’s Bank of China (PBoC) kept the rate on 400 billion yuan ($57bn) of one-year medium term lending facility loans unchanged at 2.95% for the third-consecutive month, signalling that the benchmark Loan Prime Rate (LPR) will also be left on hold on 20 July.

The ALLINDEX Enterprise Index lost 0.02%.

The LPR is set by a panel of 18 commercial banks who submit their quotes to the National Interbank Funding Centre, an average of which then serves as the pricing reference for bank lending. It is linked to rates set during open-market operations, specifically the PBoC’s medium-term lending facility. 

The ALLINDEX Financials Index slid 0.01%.

On Tuesday, China posted a remarkable uptick in its export and import figures, signalling both strong domestic demand and a recovery in external demand as lockdowns eased abroad, as reported. June exports expanded 0.5% year-on-year, while June  imports rose even faster, increasing 2.7% year-on-year. 

The ALLINDEX Local Government Index advanced 0.01%.

Some analysts believe that improvements in China’s economic backdrop is prompting a move away from supporting the economy to containing financial risk associated with cheap money, according to a Reuters article. However, an uneven recovery coupled with persistent US-China tension and a relatively muted global recovery indicates that, despite a positive turn in trade flows, policymakers will continue easing in coming months, according to Erin Xin, Economist, Greater China at HSBC. 

“Broad-based measures to lower the cost of credit through a 30bp lowering of the LPR, a 50bp cut to the reserve requirement ratio, and a 30bp cut to the deposit rate are expected. Additionally, we think policymakers will strengthen window guidance to help liquidity flow to the real economy as well as implement targeted credit easing for hard hit firms like SMEs.”