Historically low policy rates, declining inflation, and domestic liquidity in the first half resulted in heightened demand for bonds, particularly short-dated instruments, and resulted in declining short-term yields and a steepened yield curve.  Medium- to long-term yields rose significantly compared to their end-2008 levels and increased slightly over their March 2009 levels.

At the end of June 2009, the amount of the PRC’s outstanding local currency (LCY) bonds stood at CNY15.77 trillion—up 5.3% quarter-on-quarter (q-o-q), and 14.8% y-o-y (Table 1). In the first six months of 2009, corporate bonds posted a record growth rate of 90.9% y-o-y, with the stock of corporate paper rising to CNY2.426 trillion in June. Total government bonds outstanding, however, increased by a more moderate 7.0% y-o-y.

As of June 2009, the year-to-date aggregate trading volume of spot government bills and bonds on the interbank market stood at CNY17.55 trillion—11% higher than for the same period last year. The year-to-date volume of spot corporate bond trading on the interbank market totaled CNY5.17 trillion through June 2009, equivalent to 90% of the full-year 2008 corporate bond trading volume of CNY4.65 trillion.

Foreign Participation in Bond Trading and Issuance

In January 2009, the PRC announced that it would allow foreign banks to underwrite CNY-denominated bonds and trade corporate bonds in the country's interbank market.

Re-opening of Bond Issuance by Publicly-Listed Companies

CSRC approval for a listed company to issue up to CNY1 billion in bonds in July marked  the resumption of listed company bond issuance after a 10-month suspension.

Domestic Bank Participation in Bond Trading on Exchanges

In January, CBRC and CSRC issued a joint set of preliminary rules allowing listed banks to engage in bond trading on the country’s stock exchanges.

New Derivatives Master Agreement

March saw the release of a new master agreement governing activities involving onshore derivatives transactions in the PRC interbank market.

Outbound Investment Rules Relaxed

The PRC’s foreign exchange regulator, the State Administrator of Foreign Exchange (SAFE) said in June that it would allow a wider range of PRC firms to invest their foreign exchange earnings abroad, in a effort to help these firms' overseas expansion.