On December 20, a reporter from the “Financial Times” interviewed relevant experts from the People’s Bank of China on whether credit bonds should be withdrawn from the interbank market.
The expert pointed out that the inter-bank bond market is a core component of China’s bond market, and it plays an irreplaceable role in supporting government and corporate bond issuance and financing and promoting the opening up of China’s bond market. Recently, there is a view that all credit bonds should be withdrawn from the inter-bank market. This view does not fully consider the characteristics of the bond market and the development history and environment of my country’s bond market.
One is the development of which bond market, the key is not the physical location, but the trading entity. Credit bond investment is highly professional and requires investors to fully understand the macroeconomic trends, market supply and demand, and the issuer’s credit qualifications. It is difficult and risky for individual investors to participate. Especially in recent years, bond defaults have gradually increased, and professional institutional investors are required to participate in credit bond investment. The inter-bank bond market is actually a bond market for institutional investors, in which credit bonds are issued and traded, in line with the objective laws and requirements of bond market development. However, the exchange market is dominated by individual investors, which is less compatible with the development requirements of the credit bond market, and is not suitable as the main credit bond market.
Second, banks are important investors in credit bonds. The purchase and holding of credit bonds by banks in our country are historically formed and have a strong path dependence. Companies issuing bonds and financing in the inter-bank market are conducive to giving full play to the bank’s financial advantages and professional advantages in corporate credit risk pricing, enabling high-quality companies to issue bonds and financing at relatively low interest rates, and diversify risks among institutional investors . At the same time, it is also conducive to clarifying the functional positioning of the inter-bank market as an institutional investor market and the exchange market as an individual investor market, and improving the effectiveness of the central bank in adjusting liquidity and interest rates through monetary policy operations. Moreover, the credit bond market itself is prone to volatility due to relatively high risks. If all credit bonds are required to withdraw from the inter-bank market, it will directly lead to a sharp drop or even disappearance of the bank’s subscription demand for credit bonds, causing the issuance of credit bonds to stagnate and interest rates appear. Large fluctuations may even trigger systemic financial risks such as the break of the bond-issuing company’s capital chain, and will directly disrupt the development process of the credit bond market.
Third, the key to solving the bond market problem is to strengthen the construction of credit mechanisms and market discipline. The recent frequent occurrence of credit debt defaults is mainly due to the imperfect governance structure of some companies, and the market lacks necessary restraint and punishment mechanisms for malicious violations. This question has nothing to do with which market credit bonds are issued and traded in. There have been many credit default incidents in the exchange bond market in recent years, indicating that this is a common problem in the current stage of the development of the credit bond market. In the next step, the key is to improve the regulatory mechanism of the credit bond market, improve the regulatory requirements for credit rating agencies, strengthen the prevention and disposal of bond default risks, and improve the prevention, early warning, disposal and accountability systems for evasion of debt, and the Zero tolerance for violations, strengthen disciplinary restrictions on market entities, and improve investor protection measures to create a good market and legal environment for the development of the credit bond market.
Generally speaking, the structure of my country’s bond market has been developed over the past few decades. It has the characteristics of my country, and the overall development is good. However, it should also be noted that my country’s capital markets, including the stock market and bond market, still have some institutional and institutional problems that need to be resolved through continuous deepening of reforms. At present, it is necessary to strengthen consensus and speed up reform in response to problems, realize the original intention of promoting market development, ensure the stable operation of the market, and stabilize market expectations.
article links：Credit bonds are inseparable from the inter-bank market
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