After new years day, local debts are issued in advance
On January 2, Henan Province issued 12 local bonds totaling 51.9 billion yuan; the largest 20 Henan bonds 08 special bond had a term of 10 years, with a coupon rate of 3.38% and a multiple of 11.69 times. Sichuan Province issued 24 Local Bonds totaling 35.671 billion yuan; the largest 20 Sichuan 04 special bond has a term of 10 years, a coupon rate of 3.38%, and a multiple of 12.41 times.
On January 3, Guangxi Zhuang Autonomous Region disclosed plans to issue three 30-year special bonds with a total face value of 3.71 billion yuan and 1.174 billion yuan. After the issuance on the first day, Sichuan Province once again disclosed that it planned to issue 6.905 billion yuan of special construction bonds for urban and rural infrastructure and ecological environment protection, 4.93 billion yuan of special bonds for industrial park construction and cultural tourism, 3.186 billion yuan of special bonds for Rural Revitalization and special bonds for school and hospital construction.
Zhang Xu, chief fixed income analyst of Everbright Securities, believes that the issuance of local bonds in 2020 will start on the first working day after the new year, in order to make the early batch of local bond funds effective as soon as possible. It is expected that the advance batch special debt quota will incline to the projects with complete procedures and sufficient preparation for preliminary work, and the projects with obvious economic and social benefits and the expectations of the masses will be selected; in terms of regional selection, priority will be given to the areas with sufficient use and timely payment of the preliminary special debt quota and the areas with construction conditions this spring, so as to ensure the effectiveness of project construction.
In recent years, the scale of new local bond issuance has been expanding, from 0.64 trillion in 2015 to 3.06 trillion in 2019, and the proportion in the total scale of local bond issuance has increased from 16.8% to 70.1%, gradually becoming the main source of local construction funds. For local bonds in 2020, market institutions have generally expected the pace of issuance to continue to advance.
At present, the market expects the local bond issuance scale to be between 2.9-3.35 trillion yuan in 2020. For example, Guosheng securities is expected to increase the local special debt limit by about 2.95 trillion and the general debt limit by about 980 billion in 2020, with a total increase of nearly 4 trillion. CITIC Securities expects that the special debt may be matched with the deficit ratio, that is, the deficit ratio of 2.8% corresponds to a higher scale - 3.35 trillion, and the deficit ratio of 3.0% corresponds to 3 trillion. The new scale in 2020 is likely to be in the range of 3-3.35 trillion, depending on the expectation of the central government and the Ministry of Finance for this years infrastructure construction and the balance of the local governments comprehensive debt service pressure.
As of January 2, Henan, Sichuan, Qingdao, Hunan, Zhejiang and other places have announced the special bond issuance plan in January, with a total issuance amount of 465 billion yuan, of which the most funds flow to municipal and infrastructure construction, toll roads and social undertakings. Of which, 229.3 billion yuan was issued in January.
In 2020, the issuance of local government special bonds has been started, and the issuance volume in January is large, so the current market is worried that the supply of this part of bonds will break the balance of supply and demand in the current market. Zhang Xu said that the centralized issuance of local bonds will cause some disturbance to the market, but will not form an upward or downward trend force.
Without considering the constraints such as regulatory indicators, the central bank can provide commercial banks with sufficient liquidity, and then commercial banks can use it to undertake the supply of local government bonds. For example, when a large number of replacement bonds were issued in 2015, the central bank flexibly used various monetary policy tools to maintain a reasonable and sufficient liquidity and guide the reduction of financing costs; the Ministry of Finance conducted necessary organizational coordination on the scale and pace of local issuance of bonds; relevant departments coordinated financial institutions to increase the strength of replacement through targeted issuance of bonds. The above measures have achieved good results. At the end of February 2015, the yield of AAA grade 10-year Treasury bonds was 3.61%, which had dropped to 3.17% by the end of the year.
Zhang Xu said that the local government is also required to pay interest for the land bonds issued in 2020, which is essentially the same as the situation in 2015. The central banks approximate rate will create a stable financing environment for the local government, and there is no need to worry about the sharp rise of the 10-year term bond yield.
In 2019, the interest margin of some places exceeded 60BP
In 2019, Chinas local special bonds will be issued by 2.15 trillion yuan, and the market generally expects that 2020 will surpass the previous years.
On January 3, the Ministry of Finance disclosed data showing that in 2019, the national local bonds issued 4362.4 billion yuan. Among them, the newly added bonds, refinancing bonds and replacement bonds issued RMB 3056.1 billion, RMB 1148.4 billion and RMB 157.9 billion respectively. Among the new bonds, general bonds and special bonds were issued with 907.4 billion yuan and 2148.7 billion yuan respectively.
It is worth noting that in the fourth quarter of 2019, the use structure of funds raised by local bonds improved.
According to the statistics of CITIC Securities, in 2019, the proportion of land reserve in the way of raising funds from local bonds exceeded 50%, followed by shantytown reconstruction and toll road, accounting for 35% and 9% respectively. Among them, in the first three quarters of 2019, the funds raised by local bonds were still mainly used for shantytown reconstruction and land reserve projects, accounting for 37.39% and 36.72% respectively. In September 2019, this structure began to improve significantly. As the first use of local debt raised funds, Rural Revitalization accounted for 32.22%, surpassing 26.84% of land reserve project raised funds. The proportion of raised funds for shantytown reconstruction projects dropped to 8.18%, and the proportion of raised funds for toll roads further increased, reaching 16.47% in September. The improvement of the structure of local debt financing has a positive effect on the further adjustment of Local Debt Inflow projects in the future.
In addition, the Ministry of Finance disclosed that the average issuance interest rate of local bonds was reduced, with an average issuance interest rate of 3.47%, a year-on-year decrease of 42 basis points; the yield of local bonds rose by 27 basis points on average. However, different regions are differentiated, and the interest margin between individual regions and government bonds is more than 60 basis points.
We expect the amount of new special bonds to be around 3 trillion this year, and the issuance and net issuance are significantly higher than that in 2019, so it is necessary to keep the interest margin between local bonds and national bonds in a comfortable range. Zhang Xu said.
Previously, the Ministry of Finance had issued a document requiring local financial departments not to interfere with the pricing of local government bond issuance by means of guiding bidding and agreeing interest rate.
From the perspective of bond supply-demand relationship, the higher the interest margin between local government bonds and national bonds, the stronger the demand of market investors, and the more conducive to the smooth issuance of local government bonds.
The average issuing period of local bonds is extended. On the basis of keeping 3-10-year medium-term and long-term bonds as the main varieties, the issuance of 15-year, 20-year, 30-year and other ultra long-term varieties increased further. The average issuing period of local bonds is 10.3 years, an increase of 4.1 years on a year-on-year basis. Among them, more than 10-year bonds issued 810.5 billion yuan, an increase of 757.9 billion yuan over last year.
Compared with the previous ones, the use of local debt raised funds in 2019 is still concentrated in soil storage and shed reform. In the first quarter of 2020, the use of local debt raised funds is distributed in urban and rural infrastructure construction, park construction, ecological environmental protection, water conservancy, social undertakings, toll roads and other livelihood projects.
Source: responsible editor of 21st century economic report: Yang qian_nf4425