Tullett Prebon Information (TPI), a provider of independent, real-time price information from the global over-the-counter financial and commodity markets, has rolled out a comprehensive pricing service for Chinese bonds, the first of its kind.
The service aims to offer timely and independent pricing data across the interbank bond market, covering a range of instruments such as government bonds, People’s Bank of China bills, corporate commercial paper and medium-term notes, policy bank bonds and notes, and enterprise bonds.
TPI will source the data from TP Sitico, a joint venture between Tullett Prebon and Shanghai International Trust – one of the largest inter-dealer brokers in the market.
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| Frank Desmond, managing director at TPI |
“As a company we have been involved in China since 2005 and we have seen first-hand that getting accurate pricing [for Chinese bonds] has always been challenging,” says Frank Desmond, managing director at TPI. “We have a similar service set up for all other major markets so creating one for China was the natural next step. We started the process nearly 18 months ago.”
Although China has two bond markets – the inter-bank bond market regulated by the central bank, and the exchange bond market regulated by the China Securities Regulatory Commission – the inter-bank market is by far the largest, accounting for more than 95% of total trading volume.
According to Goldman Sachs, commercial banks dominate trading activity in China’s inter-bank bond market and account for 70% of trading volume.
“TPI will be pricing data daily, and the information will be available to anyone interested in understanding the Chinese bond market better,” says Desmond. “Daily, we price between 1,800 and 1,900 different bonds.”
While China’s economy is slowing down, GDP growth has still averaged at approximately 10% each year, and the bond market has grown from almost non-existent into the fourth largest in the world after the US, Japan and France, and is worth around RMB22.6 trillion ($3.77 trillion), according to TPI.
However, investors seeking to access China’s strong growth through the bond market still face huge difficulties as there is often a lack of understanding of the types of bonds available and limitations on who can invest and how.
“The more available data there is, the more awareness we can raise on the bond market,” says Desmond. “Our service works in tandem with current Chinese policy as well, which aims to expand sources of funding for Chinese corporates.”
Although Chinese corporates remain heavily reliant on bank loans, high interest demanded by banks has forced them to tap alternative routes of funding. As a result, the growth of the unregulated shadow banking system has flourished.
Developing the domestic bond market would help diversify the economy and provide an alternative method to raise necessary funds and diversify credit risk concentrated in the banking system.
The move comes during a challenging period for Chinese investors, as the expansion of access to its onshore market, via the qualified foreign institutional investor scheme, has been met by a cool reception from foreign investors, amid the global emerging-market rout.