What Is a Bank Debenture?

The inter-bank bond market refers to the relying on the China Foreign Exchange Trading Center and the National Interbank Funding Center (Interbank Center), the Central Government Bonds Depository and Clearing Corporation (CCDC), and the Interbank Market Clearing Company Limited (Shanghai Clearing House) , Including commercial banks, rural credit unions, insurance companies, securities companies and other financial institutions in the bond trading and repurchase market. After rapid development in recent years, the inter-bank bond market has now become the main part of China's bond market. Most of the book-entry government bonds and policy financial bonds are issued and traded in this market.

Interbank bond market

The inter-bank bond market means relying on

By issue subject

National debt-refers to bonds issued by the national central government. Compared with other types of bonds, the issuing body of government bonds is the national central government, which has a high degree of credit and is known as "

Participants in the inter-bank bond market negotiate transactions one by one with their chosen counterparties through inquiry, which is different from the trading method of China's Shanghai and Shenzhen exchanges. Bond transactions conducted by the exchanges, like stock transactions, are jointly bid by many investors and negotiated and negotiated by the actuarial institutions.

"

Its main functions are: providing inter-bank foreign exchange transactions, RMB interbank lending, bond trading systems and organizing market transactions; providing information services on the foreign exchange market, bond market and currency market. It was established on June 6, 1997.

(I) The status of the main board of the bond market is basically established

China's bond market is divided into the inter-bank bond market and the exchange bond market. With the rapid expansion of the inter-bank bond market, its share and influence in China's bond market continue to expand. At the end of 1997, the amount of bond custody in the interbank bond market was only 72.5 billion yuan. At the end of 2005, the amount of bond custody in the interbank bond market reached 25.96 trillion yuan. From the perspective of the secondary market transaction volume, the amount of cash transactions in the interbank bond market in 2012 70.84 trillion yuan; inter-bank repurchase transactions reached 147.6 trillion yuan, accounting for 87.1% of the total repurchase transactions. The inter-bank bond market has gradually established its main board position in China's bond market.

(2) Market functions gradually emerge, with both investment and liquidity management functions

The rapid expansion of the inter-bank bond market has provided a platform for commercial banks to operate capital and improved the efficiency of commercial banks' capital operations. From 1997 to 2012 (March), the total bond assets of commercial banks rose from 0.35 trillion yuan to 11.7 trillion yuan, accounting for 57% of the total bond custody. With the formation of huge secondary reserves of commercial banks, commercial banks will gradually reduce the level of excess reserves. While increasing the capital operation income, it will significantly enhance the liquidity of commercial bank assets. In addition, the interbank bond market has also become the central bank's open market operation platform. In 1998, the People's Bank of China began to conduct spot trading and repurchase through the inter-bank market to regulate the base currency. With the rapid growth of China's foreign exchange accounts in 2000, the People's Bank of China began to issue central bank bills through the inter-bank bond market in 2003 As of the end of 2012, the outstanding balance of central bank bills was 1.9 trillion yuan, which effectively hedged foreign exchange accounts.

(3) Compared with the international market, the market liquidity is still low

Although the transaction volume of China's inter-bank bond market has increased significantly, it is largely due to the growth of bond stocks, so overall liquidity is still poor. Market liquidity can be judged by the turnover rate indicator. In 2005, the annual turnover rate of China's inter-bank treasury bond market was only 0.88. From an international comparison point of view, the turnover rate of the US Treasury market was as high as 40, while other developed country bonds The market turnover rate also generally reaches about 10. This reflects that despite the rapid expansion of China's bond market, the market's microstructure and operating efficiency still need to be improved. The lack of liquidity in the current bond market greatly reduces the effectiveness of the bond market as liquidity management, and also affects the price discovery function of the bond market, further reducing the market's operating efficiency.

After rapid development in recent years, the inter-bank bond market has made a qualitative leap in market size, but there are still obvious constraints in terms of market structure and system construction, which further affect the liquidity and operating efficiency of the inter-bank bond market. improve. It is mainly manifested in the following aspects:

(I) Lack of proper market stratification

From the perspective of mature markets, the secondary bond market is generally divided into two levels, namely the inter-dealer market and the Dealer to Customer market. Dealers provide quotes to customers to maintain market liquidity. Then, through the inter-dealer market to adjust the bond position and manage inventory changes, the dealer as a liquidity center effectively connects the two markets and plays a central role in market organization. In contrast, the inter-bank market in China has not yet formed such a reasonable layered market structure. It can provide quotes regardless of whether it has market maker qualification, which greatly dampens the enthusiasm of market makers in providing market liquidity, and also results in market price signals. confusion. In addition, by 2011, the inter-bank market lacked professional brokers, especially among market makers. It was difficult for market makers to achieve anonymous transactions, which affected market makers' confidence in external quotations.

(2) Unbalanced bond structure, mainly concentrated in government credit bonds

At present, the development of commercial credit-based bonds in the interbank bond market is still lagging. From the perspective of the current bond stocks in the interbank bond market, as of the end of December 2005, the bond stocks in the interbank bond market were 7,217.2 billion yuan, of which national bonds, Policy financial bonds and central bank bills were 687.6 billion yuan, and commercial bank-based bonds such as commercial bank subordinated bonds, securities company bonds, and corporate bonds and financing bonds were only more than 320.6 billion yuan, accounting for less than 5% of the total bond stock. %. This situation is detrimental to the development of the interbank bond market and even the development of the financial structure.

First, it is not conducive to the smooth flow of corporate financing channels and affects the efficiency of resource allocation. Under the current financial system dominated by banks, China urgently needs to accelerate the development of a commercial credit-based bond market to meet the financing needs of enterprises while also diversifying the risks of banks.

The second is not conducive to the cultivation of investors. If the bond market is only government bonds and quasi-government bonds, it is easy to mistakenly believe that this is a market with zero credit risk. Investors risk awareness and ability to prevent risks will not be cultivated and improved, and it will be difficult to establish investors' bond issuers. Effective supervision and restraint mechanism.

Third, it is not conducive to the needs of various investors to adjust their investment portfolios. Institutional investors need bond assets with different risks to meet their asset portfolio needs, and bonds based on commercial credit need to account for a significant proportion.

(3) The market maker system has not really played its role

This manifests itself in the following areas:

1. Market making rights and obligations are unequal, and market makers lack the inherent motivation for market making. The market maker must bear the true continuous quotation obligation without enjoying any policy preferences, which inevitably affects the market maker's enthusiasm and initiative.

2. The market maker's price discovery function is not significant enough. From the perspective of overseas mature markets, market makers 'quotes can effectively improve price transparency. When other members of the market conduct related bond transactions, they mainly refer to market makers' quotes. At present, the price quotations of market makers in China are often too large, and most of them are passive quotations, which fail to show the price formation mechanism.

3. The types of existing market makers are difficult to meet market requirements. At present, the market makers in the interbank bond market are mainly commercial banks. Due to the rapid growth of deposits in recent years. Commercial banks need to allocate a large amount of bond assets. Therefore, the "buy-hold" investment strategy is mainly used. It did not play the role of an intermediary. The functioning of the market maker requires the introduction of a wider range of institutions.

(IV) Lack of interest rate risk management tools in the market, affecting further market development

With the rapid development of the bond market and the rapid expansion of the market size, the proportion of bond assets in the asset structure of market participants has continued to rise, which has hidden huge interest rate risks. In mature markets, market participants can use interest rate futures, options, swaps and other derivatives to hedge and manage interest rate risk. However, China currently lacks tools for interest rate risk management. Once the market interest rate rises, bond prices will fall sharply, and bonds Investors will be forced to take interest rate risk. The lack of interest rate risk management tools also affects the enthusiasm of market makers. Because market makers' inventory risks are all mouth-watering, it will inevitably reduce the size of inventory and affect the ability of market makers to provide liquidity to the market.

(5) The current accounting system hides a large systemic risk

Because there is no widely recognized price discovery mechanism in the inter-bank market, the current inter-bank market basically adopts the cost method. This means that investors' book assets can be immune to market price fluctuations, and market participants therefore lack the incentive to trade in the secondary market. This type of accounting treatment hides a large systemic risk, which may cause a large deviation between the book value of the financial institution's bonds and the actual value. This risk is an industry and systemic risk. According to International Accounting Standards, all financial assets should be valued at fair value. The International Accounting Standards Committee defines fair value as: "Fair value is the value of assets or claims that are acceptable to both parties in a fair transaction." Once China's accounting system and International standards, the large number of bonds held by financial institutions in the interbank market need to be revalued, which may have a significant impact on the balance sheets of market participants.

(I) Improve the bond market intermediary system and form a reasonable market structure

The unique role of the intermediary is an indispensable important factor to ensure the active and efficient trading of the bond market, and it is a lubricant for the efficient operation of the market. To this end, it is necessary to improve the bond trading and settlement agency system in the interbank market, and actively promote the agency business of small and medium financial institutions and non-financial institutions that have not yet entered the interbank bond market, which is conducive to expanding the coverage of the interbank bond market and increasing the market. depth. At the same time, a full-time broker-dealer serving market makers is established to gradually form a reasonable layered market structure and promote bond market liquidity.

(2) Improve market maker system and strengthen market organization

A mature market maker system has been established in mature overseas bond markets. Market makers play an important role in maintaining market liquidity. China's inter-bank market is essentially an over-the-counter market, and it uses an inquiry trading mechanism. The information is relatively scattered. It is necessary to promote market makers' price discovery in the market, promote market liquidity, and play the role of market organization. Therefore, market managers should set out to select banks and securities companies with strong capital, good reputation, and active trading from government bond underwriters to act as market makers, and expand the types of market makers; and introduce policy support for the market maker system. Including financing and securities lending system and short selling mechanism to solve the worries of market makers; at the same time, strengthen the assessment and supervision of market makers, implement the survival of the fittest, and promote effective competition among market makers.

(3) Promote market transaction product innovation to meet market development requirements

Including the following aspects:

(1) Increase trading varieties and optimize bond structure. In terms of the current market trading varieties, the majority of medium- and long-term bonds and short-term bonds account for a small proportion, which seriously affects the market's activity level. Issuing institutions can consider adopting rolling issuance methods to appropriately increase the development of short-term bond varieties. In addition, large companies are encouraged to adopt corporate Debt financing to increase the proportion of credit products in the interbank market.

(2) Encourage commercial banks to issue bonds in the bond market. The issuance of financial bonds by commercial banks can not only increase the variety of bonds, but also effectively solve the problem of insufficient auxiliary capital of commercial banks, which is conducive to reducing bank operating costs and enhancing bank competitiveness.

(3) The introduction of new financial instruments such as price index bonds. Price index bonds can eliminate the discount of inflation risks in prices. Many countries in Europe and the United States have such price index bonds, which are very popular with investors. China should actively try this out.

(4) Speed up the development and promotion of financial derivatives, such as interest rate swaps, and provide market participants with tools to hedge interest rate risk.

(4) Accelerate the pace of market infrastructure construction and create a good operating environment

This includes:

(1) Improve delivery efficiency and reduce settlement risk. At present, the inter-bank market has introduced a "dvp payment" (DVP) settlement method, which effectively reduces the settlement risk of market participants. However, the current DVP settlement scope is limited to individual banks, and its scope of application needs to be promoted, especially for Africa. Banks and financial institutions will arrange the path for DVP settlement.

(2) Improve the accounting system and prevent system risks. As the scale of the inter-bank market continues to expand, its accounting treatment issues have increasingly become the focus of market attention. Although current cost method pricing is supported by market participants, it has hidden large systemic risks, which may be related to fair value. The existence of large deviations also limits the improvement of liquidity in the bond market.

Therefore, it is imperative to promote the inter-bank market to be valued at market fair value as soon as possible. Specific fair value standards can be formulated by industry associations, and the price sampling scope should include the interbank market and the exchange market. For certain securities that are particularly inactive, you can calculate them based on the yield curve.

(5) Promote unified interconnection of bond markets

In addition to the inter-bank bond market, China also has an exchange bond market. However, the two markets are currently severely fragmented and a unified yield curve has not been formed, restricting the development of the national bond market. The competent authority has introduced some measures to promote market unification, such as the entry of securities companies and funds into the inter-bank bond market and the issuance of national bonds across markets, which has strengthened the linkage between the inter-bank bond market and the exchange bond market, Unification has played a role. However, in essence, these measures have failed to fundamentally solve the problem of market segmentation, which is prominent in the fact that members such as commercial banks cannot participate in the exchange bond market, and the difference between the two markets has become increasingly significant.