Local debt risk weight is expected to decrease
China Securities Journal reporter learned from many sources that the local debt risk weight is expected to be reduced to zero in the near future. According to industry insiders, this will significantly increase the attractiveness of local debt, and the demand for bank allocation will increase significantly.
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Risk weighting or falling to zero
According to people familiar with the matter, the local debt risk weight is expected to fall from the original 20% to zero.
According to the relevant provisions of the "Capital Management Measures for Commercial Banks (Trial)", the bank's capital adequacy ratio shall not be lower than the established downline, that is, the total amount of bank venture capital shall not exceed the quantitative amount under the condition of total capital. After the local debt risk weight is lowered, the total amount of local bonds that banks can invest in the increase of total capital will increase. The risk of local debts is adjusted to zero, which means that in the proportion of risk assets, local bonds will enjoy the same treatment as national debt and national debt. Local bond yields are higher than the latter two, and the attractiveness of banks is expected to increase significantly.
A private equity bond trader told China Securities Journal that the bank is the largest buyer of local debt, and 80% of local debt comes from banks. Once implemented, the above policies will bring great benefits to local bonds.
Last weekend, there was sporadic news in the market that the local debt risk weight would be lowered. Li Zhifeng, director of fixed-income investment in Yinye Investment, said that the 10-year bond yield on Monday was 4.30%. Market participants believe that 4.30% is the upward pressure on the 10-year state bond yield. Although the 10-year bond yields have been adjusted downwards, the CDB is clearly under pressure. At present, the fluctuation of RMB exchange rate against the US dollar affects the interest rate trend. It is not yet certain that the interest rate bond yield trend is only affected by the expected squeeze of local bonds. In addition to directly benefiting local debts, the local debt risk weight reduction will also indirectly benefit some local enterprise stocks, depending on the relevant rules.
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Multiple initiatives to promote distribution
Recently, the relevant departments have accelerated the issuance of local bonds in a multi-pronged manner. If the risk weight of local debts is lowered, it will stimulate the demand side and promote the development of the local debt market.
On August 14, the Ministry of Finance website issued the "Opinions on Doing a Good Job in the Issuance of Special Bonds for Local Governments" (hereinafter referred to as "No. 72"). Circular 72 proposes to speed up the issuance and use of special bonds for local governments, and make corresponding arrangements and deployments.
Li Qilin, managing director and chief macro researcher of Lianxun Securities, believes that the No. 72 document requires that the proportion of new special bond issuances that have been completed by the end of September to be completed at the end of September should not be less than 80%. According to the increase of 1.35 trillion yuan and the amount of less than 200 billion yuan, in the next one and a half months, the inter-bank market will usher in the supply of local special bonds of 800-100 billion yuan.
"Accelerating the issuance of local bonds is not only to urge issuers to speed up the issuance, but also to consider whether they can get the issue. This requires starting from both supply and demand, and doing work at the same time." A bond investor said, No. 72 The article identifies the goal of accelerating the issuance of special bonds for local governments. How to effectively improve the efficiency of issuance, improve the demand for local bonds, and ensure the smooth issuance of local bonds is the focus of supporting policies. The most direct way to protect local debt needs is to provide attractive coupons.
Circular 72 proposes to raise the marketization level of special bond issuance. The local financial department may not exert artificial influence on the underwriting institution by means of financial deposits. For the non-market-based intervention in the pricing of local bond issuance, the Ministry of Finance will notify you once it is verified.
The China Securities Journal reporter noted that the interest rates on local bond issuance have recently been 40 Bp higher than the lower limit of the issue rate. This phenomenon may not be purely coincidental. According to the current regulations, the lower limit of the local bond issuance interest rate interval is not less than the average of the same payable government bond yields from 1 to 5 working days before the issue date. The local bond issuance rate is 40 Bp higher than the lower limit, which means that the coupon rate is at least 40 Bp higher than the same period government bond Adjuvant Capecitabine.
Or welcoming good
The industry believes that if the local debt risk weight is reduced to zero, the bank's allocation of local debt power will be significantly improved.
A well-known investment institution fixed-income investment manager said that the reduction of local debt risk weight will consolidate the "city investment belief" in the industry. Although urban investment debt is a hidden liability of the local government, it is not a local debt in the true sense. However, the above policies will be transmitted to the city investment platform for the benefit of local governments. Similar to the above-mentioned people, some urban investment investors believe that the local debt will be transmitted to the city investment bonds and become a good investment in the city.
However, a well-known fixed-income investor in the industry said that although the risk weight reduction is a good local debt, it will not have a significant impact on the probability of urban investment bonds. The impact on local enterprises needs to be seen in the relevant rules. When asked if it would cause a crowding out effect on national debt, the above-mentioned investors said that if liquidity is sufficient, then the reduction of local debt risk weight will have limited effect on interest rate debt. He said that his institution continued to look at multi-interest debt and high-rated credit bonds, and saw a further loose signal to increase the position.
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The article is from: http://www.xinhuanet.com/money/2018-08/21/c_1123300255.htm