REPORT ON THE INTERBANK LENDING AND BOND SYSTEM IN Q3 2004

In the 66 trading days in the third quarter of 2004, 18,721 deals were concluded on the national interbank lending and bond market, with a trading volume of 3,417.68 billion yuan. The average daily turnover was 51.783 billion yuan, down 38.37 percent year-on-year and up 2.93 percent quarter-on-quarter. Compared with the wild fluctuations in the second quarter, the third quarter was relatively smooth, as confidence gradually returned. Transactions were more active, and money market interest rates were mixed at the close.

Lending volume shrank and the lending rate changed slightly

Third quarter credit lending on the interbank lending market had a cumulative turnover of 331.033 billion yuan from 1,961 deals. The average daily turnover stood at 5.016 billion yuan, down 52.63 percent year-on-year and 18.54 percent from last quarter. Affected by fund supply and issuing in the primary market, the lending rate moved slightly within the range of 2.2-2.4. The weighted average interest rate opened the quarter at 2.27, and closed at 2.33, up 6 bps. The high and low in the quarter were 2.57 and 2.12, respectively.

Among the eight tracked varieties, the interest rate for 1-month led the gainers with a quarter-on-quarter rise of 16.74 percent. The 3-month was the biggest loser with a loss of 9.52 percent. As compared with the same period of last year, long terms above one month all soared while short terms all shrank dramatically.

Repo turnover rebounded and interest rates fluctuated moderately

10,959 deals of bond repo were concluded in the third quarter, with a turnover of 2.447 billion yuan. The weighted average rate closed the quarter at 2.34 percent, 8 bps lower than the quarter-opening 2.42. The highest and lowest points were 2.47 and 2.12.

Compared to the second quarter, seven varieties rose and the other three went down. The 1-year and 6-month varieties witnessed rising prices and shrinking turnover in the quarter, with their rates up 44.32 percent and 26.11 percent, and the turnover down 57.73 percent and 79.74 percent respectively. The 4-month outperformed the market with its concluded deals and turnover increasing year-on-year by 4 fold and 45 fold, respectively.

Outright repo was increasingly active with larger interest rate swings

In the third quarter, 340 outright repo deals were sealed in the market, with a value of 49.456 billion yuan. The average daily turnover was 749 million yuan, doubling the figure of the previous quarter. In the last ten days of August, the interest rate swung wildly in a broad range. The weighted interest rate reached a high and low of 2.83 and 1.71 respectively. The quarter starting and ending figures of the rate were 2.62 and 2.45 percent, with a range of 17 bps.

Compared to the second quarter, the turnover for overnight decreased by 58.26 percent. 7-day trading accounted for 67.43 percent of total trading. Trading of varieties longer than 14 days was responsible for 6 to 7 percent of the grand total. In terms of rates, all varieties declined to different extents, except overnight. As of the end of September, 405 institutions had assigned agreements with CFETS for outright repo business.

Bond trading resumed vigorously and composite bond index rose

In the third quarter of 2004, the bond market concluded 5,461 deals valued at 590.08 billion yuan. The average daily turnover of 8.941 billion yuan was a year-on-year dip of 51.13 percent and a quarter-on-quarter rise of 8.98 percent. The composite bond index started the quarter at 1149.44 and finished at 1155.14, with a high of 1156.95 low of 1145.85.

172 bonds were traded in the interbank market, including 47 T-bonds, 65 policy financial bonds, 58 central bank papers, and one corporate bond. Compared with last quarter, turnover for financial bonds shrank considerably and that for central bank papers climbed.

Institutional financing

Compared to the previous quarter, in the third quarter, state-owned commercial banks, fund companies, and rural credit cooperatives expanded their financing, with both borrowing and lending; city commercial banks and other financial institutions both experienced a decline in borrowing and lending. In borrowing, fund companies' borrowing rocketed up by 94.53 percent year-on-year, while city commercial banks and rural credit cooperatives ranked first and second. Meanwhile, insurance companies cut their lending by 33.91 percent from the previous quarter, and state-owned commercial banks and joint-stock banks remained the top two lenders.