Logical Analysis Report

Key Focus

China's rapidly expanding $15tn mainland bond market offers some tantalising prospects for pension funds and other institutional investors that have seen sources of income decline and disappear from their traditional hunting grounds in the US and Europe.But a thicket of legal, regulatory, and trading risks lies ahead for international investors, according to the IMF, which has warned that the worlds second-largest fixed income pool requires sweeping reforms to raise standards.Low liquidity and a shallow market present fundamental problems
Foreign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond defaults by Chinese issuers were unknown before 2014.
Nor are foreign investors allowed to trade bond futures. Foreign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond defaults by Chinese issuers were unknown before 2014
But the states willingness to bail out state-owned enterprises and local government financing vehicles has generated a deeply entrenched system of implicit guarantees for lenders, leading to excessive risk taking and capital misallocation.Calls for reforms face resistance, not least from lending banks which would be forced to increase their capital buffers against losses on bad loans.RecommendedAnalysisChinese business & financeChina's bond market shines as Treasuries turn treacherousThe default rate in China's bond market, which is much lower than other international markets, is expected to rise but how far is unclear
Chinese bond issuers pay for ratings themselves, a clear conflict of interest. China's rating industry needs to rebuild credibility, said the IMF.Further complicating matters is the fact that the oversight of rating agencies is split between different regulators depending on the type of bond issuer

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High Level Topics

BONDS

BOND

CHINA

RISK

High Level Abstractions

BONDS(2, 0 Order)

( BONDS )(2, 0 Order) top

BOND(5, 0 Order)

( BOND )(5, 0 Order) top

( BOND, RISK )(2, 1st Order) top

( BOND, INVESTORS )(2, 1st Order) top

( BOND, IMF )(3, 1st Order) top

( BOND, CHINA )(3, 1st Order) top

( BOND, INTEREST )(2, 1st Order) top

( BOND, INCOME )(2, 1st Order) top

( BOND, CHINESE )(1, 1st Order) top

( BOND, CAPITAL )(1, 1st Order) top

( BOND, VEHICLES )(1, 1st Order) top

( BOND, TREACHEROUSTHE )(1, 1st Order) top

( BOND, TRADING )(2, 1st Order) top

( BOND, THICKET )(1, 1st Order) top

CHINA(3, 0 Order)

( CHINA )(3, 0 Order) top

RISK(3, 0 Order)

( RISK )(3, 0 Order) top

References

( BONDS ) top
(Read more) top ... requires sweeping reforms to raise standards.Low liquidity and a shallow market present fundamental problems. Regulatory restrictions mean that domestic commercial banks, the most important owner of onshore bonds, tend to hold bonds to maturity. This reduces liquidity in the secondary market, leading to higher trading costs.Apart from government bonds and bank policy bonds, liquidity in other segments of the market...
(Read more) top ... the Asian asset manager.Efficient price discovery has been weakened by the lack of a deep liquid benchmark yield curve. US Treasury issuance is focused on specific maturities, such as 10- and 30-year bonds, known as key tenors. But China issues government bonds across a broad spread of key tenors. This complicates trading strategies including curve trades and cash bonds against futures which help to enhance...
( BOND ) top
( BOND, RISK ) top
(Read more) top Nor are foreign investors allowed to trade bond futures. Foreign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond defaults by Chinese issuers were unknown before 2014
(Read more) topBut the states willingness to bail out state-owned enterprises and local government financing vehicles has generated a deeply entrenched system of implicit guarantees for lenders, leading to excessive risk taking and capital misallocation.Calls for reforms face resistance, not least from lending banks which would be forced to increase their capital buffers against losses on bad loans.RecommendedAnalysisChinese...
( BOND, INVESTORS ) top
(Read more) top China's rapidly expanding $15tn mainland bond market offers some tantalising prospects for pension funds and other institutional investors that have seen sources of income decline and disappear from their traditional hunting grounds in the US and Europe.But a thicket of legal, regulatory, and trading risks lies ahead for international investors,...
(Read more) top Nor are foreign investors allowed to trade bond futures. Foreign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond...
( BOND, IMF ) top
(Read more) top ... income decline and disappear from their traditional hunting grounds in the US and Europe.But a thicket of legal, regulatory, and trading risks lies ahead for international investors, according to the IMF, which has warned that the worlds second-largest fixed income pool requires sweeping reforms to raise standards.Low liquidity and a shallow market present fundamental problems
(Read more) top Foreign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond defaults by Chinese issuers were unknown before 2014.
(Read more) topChinese bond issuers pay for ratings themselves, a clear conflict of interest. China's rating industry needs to rebuild credibility, said the IMF.Further complicating matters is the fact that the oversight of rating agencies is split between different regulators depending on the type of bond issuer
( BOND, CHINA ) top
(Read more) top This complicates trading strategies including curve trades and cash bonds against futures which help to enhance liquidity and price discovery in US fixed income markets.The vulnerability of China's internal bond market to adverse shocks is also greater because turnover tends to depend on whether the central bank is easing or tightening monetary policy
(Read more) top... would be forced to increase their capital buffers against losses on bad loans.RecommendedAnalysisChinese business & financeChina's bond market shines as Treasuries turn treacherousThe default rate in China's bond market, which is much lower than other international markets, is expected to rise but how far is unclear
(Read more) topChinese bond issuers pay for ratings themselves, a clear conflict of interest. China's rating industry needs to rebuild credibility, said the IMF.Further complicating matters is the fact that the oversight of rating agencies is split between different regulators depending on the type...
( BOND, INTEREST ) top
(Read more) top Nor are foreign investors allowed to trade bond futures. Foreign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond defaults by Chinese issuers were unknown before 2014
(Read more) topChinese bond issuers pay for ratings themselves, a clear conflict of interest. China's rating industry needs to rebuild credibility, said the IMF.Further complicating matters is the fact that the oversight of rating agencies is split between different regulators depending...
( BOND, INCOME ) top
(Read more) top China's rapidly expanding $15tn mainland bond market offers some tantalising prospects for pension funds and other institutional investors that have seen sources of income decline and disappear from their traditional hunting grounds in the US and Europe.But a thicket of legal, regulatory, and trading risks lies ahead for international investors, according to the IMF, which...
(Read more) top This complicates trading strategies including curve trades and cash bonds against futures which help to enhance liquidity and price discovery in US fixed income markets.The vulnerability of China's internal bond market to adverse shocks is also greater because turnover tends to depend on whether the central bank is easing or tightening monetary policy
( BOND, CHINESE ) top
(Read more) top Foreign investors do not have sufficient derivative tools to hedge against exchange rate risk, interest rate risk and credit risk, the IMF noted in a review of the market.Bond defaults by Chinese issuers were unknown before 2014.
( BOND, CAPITAL ) top
(Read more) top... willingness to bail out state-owned enterprises and local government financing vehicles has generated a deeply entrenched system of implicit guarantees for lenders, leading to excessive risk taking and capital misallocation.Calls for reforms face resistance, not least from lending banks which would be forced to increase their capital buffers against losses on bad loans.RecommendedAnalysisChinese business &...
( BOND, VEHICLES ) top
(Read more) topBut the states willingness to bail out state-owned enterprises and local government financing vehicles has generated a deeply entrenched system of implicit guarantees for lenders, leading to excessive risk taking and capital misallocation.Calls for reforms face resistance, not least from lending banks...
( BOND, TREACHEROUSTHE ) top
(Read more) top... least from lending banks which would be forced to increase their capital buffers against losses on bad loans.RecommendedAnalysisChinese business & financeChina's bond market shines as Treasuries turn treacherousThe default rate in China's bond market, which is much lower than other international markets, is expected to rise but how far is unclear
( BOND, TRADING ) top
(Read more) top ... pension funds and other institutional investors that have seen sources of income decline and disappear from their traditional hunting grounds in the US and Europe.But a thicket of legal, regulatory, and trading risks lies ahead for international investors, according to the IMF, which has warned that the worlds second-largest fixed income pool requires sweeping reforms to raise standards.Low liquidity and a...
(Read more) top US Treasury issuance is focused on specific maturities, such as 10- and 30-year bonds, known as key tenors. But China issues government bonds across a broad spread of key tenors. This complicates trading strategies including curve trades and cash bonds against futures which help to enhance liquidity and price discovery in US fixed income markets.The vulnerability of China's internal bond market to...
( BOND, THICKET ) top
(Read more) top ... some tantalising prospects for pension funds and other institutional investors that have seen sources of income decline and disappear from their traditional hunting grounds in the US and Europe.But a thicket of legal, regulatory, and trading risks lies ahead for international investors, according to the IMF, which has warned that the worlds second-largest fixed income pool requires sweeping reforms to raise...
( CHINA ) top
(Read more) top See ( BOND , CHINA )
( RISK ) top
(Read more) top ... income markets.The vulnerability of China's internal bond market to adverse shocks is also greater because turnover tends to depend on whether the central bank is easing or tightening monetary policy. Risk management processes are complicated by limited access to repo markets and derivatives. Facilities such as bond borrowing, forward and interest rate swaps can be used by foreign investors only if they...
(Read more) top See ( BOND , RISK )