Bond ETF total scale exceeds 1 trillion yuan, with net inflows over 100 billion in Q3

Ministry of Finance: August New Local Government Bond Issuance Reaches 644 Billion Yuan

According to the Ministry of Finance's official website, in August 2026, China issued 644 billion yuan in new local government bonds, comprising 122.7 billion yuan in general bonds and 521.3 billion yuan in special bonds. Refinancing bonds totaled 550.5 billion yuan, including 179.8 billion yuan in general bonds and 370.7 billion yuan in special bonds. Total local government bond issuance reached 1,194.5 billion yuan, with 302.5 billion yuan in general bonds and 892 billion yuan in special bonds.

As of the end of August 2026, the outstanding balance of local government debt stood at 59,895.5 billion yuan. Of this, general debt accounted for 17,919.4 billion yuan, special debt for 41,976.1 billion yuan; government bonds totaled 59,733.6 billion yuan, while non-government bond形式的存量政府债务 amounted to 161.9 billion yuan.

PBOC: Overseas Holdings of Onshore RMB Financial Assets Reach 11.3 Trillion Yuan as of End-June 2026

According to the 2026 RMB Internationalization Report released by the People's Bank of China (PBOC), as of the end of June 2026, overseas entities held a total of 11.3 trillion yuan in onshore RMB financial assets, including stocks, bonds, loans, and deposits, representing a year-on-year increase of 9.2%. As of the end of the first quarter of 2026, the RMB reserve held by reporting economies in the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) survey stood at $260.1 billion.

Shenzhen Stock Exchange Terminates Review of Three Bond Projects Totaling 8.74 Billion Yuan

According to data from Enterprise Early Warning, the Shenzhen Stock Exchange has terminated the review of three bond projects with a total value of 8.74 billion yuan. The projects include private placements and asset-backed securities (ABS). The terminated projects are:

• "First Capital Securities - Chengda 1-20期 Asset-Backed Special Plan" (5 billion yuan)
• "Chongqing Fuling Industrial Development Group Co., Ltd. 2026 Non-Public Issuance of Corporate Bonds to Professional Investors" (2.74 billion yuan)
• "Sichuan Hongda Transportation Development Group Co., Ltd. 2026 Non-Public Issuance of Corporate Bonds to Professional Investors" (1 billion yuan)

Bond ETF Scale Surpasses 1 Trillion Yuan, Setting New Records

Public data shows that bond ETF scale has grown rapidly, repeatedly hitting new highs. Since the third quarter, bond ETFs have seen net inflows exceeding 100 billion yuan, with total scale surpassing 1 trillion yuan for the first time. Industry insiders note that bond ETFs, characterized by transparent underlying assets and high trading and allocation efficiency, can better meet investors' asset allocation needs, drawing increasing attention.

6 Trillion Yuan Swap Bond Issuance Nears Completion at 98%, Focus Shifts to Operational Debt

The allocation of resources for swapping local government隐性债务 is entering its final phase. According to statistics from a third-party channel cited by Cailianshe, the issuance progress of the three-year, 6 trillion yuan swap bond program has reached 98%, with most provincial quotas essentially allocated. As the officially reported scale of隐性债务 declines significantly and debt resolution resources taper off, the first half of this large-scale debt resolution campaign is nearing completion. Market attention is now turning to the resolution of operational debt held by financing platforms.

Proactive Fiscal Policy Front-Loaded: Special Bond Issuance Progress Exceeds 70% This Year

According to Enterprise Early Warning, as of September 27, local government special bond issuance this year has exceeded 3.36 trillion yuan, completing over 70% of the full-year quota of 4.4 trillion yuan. Provinces including Guangdong, Shandong, and Jiangsu lead in issuance volume, while Hebei, Jiangxi, Hubei, and Chongqing have been included in the "self-review and self-issuance" pilot program. Funds are primarily directed toward three major areas: municipal and industrial park infrastructure, transportation infrastructure, and public services, accounting for over 60% of total issuance. A concentrated issuance window is expected in the fourth quarter. Experts recommend accelerating issuance and utilization, improving project reserves, strengthening full life-cycle performance management, and promoting models such as "debt-loan linkage."

Hong Kong Exchanges and Clearing Limited (HKEX) to Expand Usage Scenarios for Chinese Government Bonds

On September 25, HKEX announced that its subsidiaries, Hong Kong Futures Clearing Limited and HKEX Options Clearing House Limited, plan to accept, from November 2026, Chinese government bonds and policy bank bonds held via the Bond Connect "Northbound" channel, as well as bonds issued by the Ministry of Finance of the People's Republic of China and sold offshore, as eligible non-cash collateral for margin requirements. The arrangement is subject to regulatory approval. This move further implements the previously announced arrangement by the Hong Kong Securities and Futures Commission, the Hong Kong Monetary Authority, and the PBOC. On July 7, 2026, the three parties jointly announced the acceptance of Bond Connect bonds as eligible non-cash collateral for Hong Kong's derivatives market.

10-Year U.S. Treasury Yield at Nearly Two-Decade High

U.S. investors grew uneasy last week as the key 10-year U.S. Treasury yield, which influences mortgage rates, surged to 5.23% on Friday—the highest level since 2007. This marks the latest rise in the benchmark yield, which traded just below 4.8% earlier this month. Bond yields move inversely to prices. The rapid rise of the 10-year yield above 5% indicates shifting investor expectations for further tightening by the Federal Reserve amid persistent inflation. According to the CME FedWatch Tool, federal funds futures trading suggests a 64% probability of a rate hike in October.

UK Gilt Yields Surge; Fiscal Budget May Require Spending Cuts

Since the escalation of tensions in the Middle East in March, UK gilt yields have continued to rise, recently remaining at levels not seen since the financial crisis. On September 25, the UK 10-year gilt yield stood at 5.37%, and the 30-year yield at 5.85%, up 61 basis points and 29 basis points year-on-year, respectively. The sharp rise in gilt yields is placing significant pressure on UK public finances. According to the UK Office for National Statistics, total public debt reached £2.99 trillion as of August, accounting for 93.8% of GDP. With rising interest payments and weak tax revenue growth, the autumn budget is likely to focus on cost-cutting and expenditure reduction to adhere to fiscal discipline and ensure fiscal sustainability. Tightening or cutting welfare spending may become a key policy direction.

Three Top ECB Positions to Become Vacant; Succession Competition Expected to Intensify

According to Sina Finance, European Central Bank (ECB) Executive Board member Isabel Schnabel has announced she will step down early in January next year, one year before her term ends, leaving a vacancy in the top decision-making body in just over three months. ECB President Christine Lagarde and Chief Economist Philip Lane are both due to leave office in 2027, with Lagarde also hinting at the possibility of an early departure. The likelihood of a package deal covering multiple positions is increasing. Three EU leaders' meetings remain this year, which could serve as political negotiation opportunities. However, Germany, France, Italy, and Spain face election-related political pressures, increasing the risk of a stalemate in personnel arrangements.

Open Market Operations

On September 24, the PBOC conducted 51.5 billion yuan in 7-day reverse repurchase agreements at a fixed interest rate of 1.40% via quantity-based bidding, fully meeting the demand of primary dealers. The bid amount was 51.5 billion yuan, and the winning amount was 51.5 billion yuan. Data shows that 162 billion yuan in reverse repos matured on the same day, resulting in a net withdrawal of 110.5 billion yuan.

Credit Bond Events

• Oceanwide Holdings: Failed to repay offshore USD bonds upon maturity.
• Brilliance Auto (Blue光发展): 3.16% of the company's shares held by the controlling shareholder will be publicly auctioned on October 9.
• Huijin Technology: Recorded asset impairment of 4.794 million yuan in 2026.
• Ji'an City Investment: "23 Ji'an City Investment MTN001" is scheduled for repayment on October 23, 2026.
• Quanzhou Water Group: "25 Quanzhou Water MTN003" is scheduled to pay interest of 11.95 million yuan on October 11, 2026.
• Sanan Optoelectronics: Actual controller Lin Xiucheng has been criminally detained; 16.3 billion yuan in shares are frozen.
• Angel Yeast: Plans to raise up to 3.5 billion yuan through its first-ever convertible bond issuance since listing.
• Wasu Media: Approved to register 2 billion yuan in ultra-short-term commercial paper.
• Shenzhen Energy: 1.5 billion yuan in perpetual corporate bonds will be listed on the Shenzhen Stock Exchange.
• Longjian Co., Ltd.: Controlling shareholder Jianguo Group reduced its holdings of convertible bonds by 1.17 million lots, reducing its stake to 0%.

Market Dynamics

Money Market Rates Mostly Decline

On Thursday, September 24, money market rates mostly declined. The weighted average interest rate for pledged repo in the interbank market:

• Overnight: down 0.48 BP to 1.3592%
• 7-day: up 1.05 BP to 1.3946%
• 14-day: down 1.66 BP to 1.415%
• 1-month: down 0.33 BP to 1.4367%

The weighted average interest rate for interbank lending:

• Overnight: up 0.11 BP to 1.3721%
• 7-day: down 5.22 BP to 1.3637% (lowest since May this year)
• 14-day: down 0.17 BP to 1.4514%
• 1-month: down 11.9 BP to 1.4835%

Shibor short-term rates mostly rose:

• Overnight: up 0.27 BP to 1.364%
• 7-day: up 1.6 BP to 1.4%
• 14-day: down 1.2 BP to 1.418%
• 1-month: up 0.07 BP to 1.426%

Interbank repo fixing rates showed divergence:

• FR001: up 0.12 BP to 1.3812%
• FR007: unchanged at 1.42%
• FR014: down 3.0 BP to 1.43%

Interbank repo fixing rates (FDR) mostly flat:

• FDR001: unchanged at 1.36%
• FDR007: down 1.0 BP to 1.38%
• FDR014: unchanged at 1.43%

Long-End Bonds Strengthen; 30-Year Government Bond Yield Falls Over 1.5 BP

On Thursday, September 24, government bond futures closed higher across the board:

• 30-year futures: up 0.31% to 117.370 yuan
• 10-year futures: up 0.03% to 109.590 yuan
• 5-year futures: up 0.03% to 106.565 yuan
• 2-year futures: up 0.01% to 102.594 yuan

Yields on major interbank government bonds mostly declined. As of 4:30 PM:

• 10-year active government bond (260016) yield: down 0.40 BP to 1.6670%
• 10-year active policy bank bond (260205) yield: down 0.75 BP to 1.7480%
• 30-year active government bond (260004) yield: down 1.51 BP to 2.1049%

Industry insiders noted that on the evening of September 23, the PBOC announced an oversized Medium-term Lending Facility (MLF) operation and plans to conduct overnight reverse repo operations from September 28 to October 8, with a daily cap of 1 trillion yuan, demonstrating a supportive stance on liquidity during the quarter-end and holiday period. Despite surging U.S. Treasury yields, the domestic bond market showed resilience. Yields on bonds with maturities within 10 years did not show a clear trend, but the compression of spreads on 30-year ultra-long bonds continued to materialize, with yields declining notably.

Credit Bond Yields Mixed; Total Trading Volume Reaches 108.7 Billion Yuan

On Thursday, September 24, credit bond yields mostly declined, term spreads generally narrowed, and credit spreads generally widened. Total trading volume reached 127.2 billion yuan. Bonds with the highest yields included "26 Shaanxi Construction Engineering CP004," "23 Jinneng Shanxi MTN001," and "24 Water Development Group MTN011."

For AAA-rated medium-term notes:

• 1-year yield: up 0.04 BP to 1.5118%

For AA-rated medium-term notes:

• 1-year yield: up 0.04 BP to 1.5518%

For AAA-rated urban investment bonds:

• 1-year yield: up 0.5 BP to 1.5125%

For AA-rated urban investment bonds:

• 1-year yield: unchanged at 1.5569%

Six credit bonds saw gains exceeding 2%, with "25 Guosheng MTN001 (Sci-Tech Bond)," "24 Ningbo Tongshang Bond 01," and "25 Zhengzhou Public Utilities MTN001" leading, rising 4.98%, 4.59%, and 3.75%, with trading volumes of 311.8085 million yuan, 10.5583 million yuan, and 10.1114 million yuan, respectively.

Bonds with the largest declines included "24 Yukai Bond," "22 Xuzhou Gong 01," and "26 Yaxin Coalbed Methane GT02," falling 1.92%, 1.65%, and 1.2%, with trading volumes of 8.0857 million yuan, 101,500 yuan, and 14.8197 million yuan, respectively.

High-Yield Bonds: A total of 80 credit bonds with yields above 5% traded, with "26 Shaanxi Construction Engineering CP004," "23 Jinneng Shanxi MTN001," and "24 Water Development Group MTN011" posting the highest yields at 8.1%, 7.91%, and 6.93%, with trading volumes of 38.9388 million yuan, 15.0854 million yuan, and 20.4031 million yuan, respectively.

European Bond Market: Yields Mostly Decline

On Friday, September 25, European bond yields mostly declined:

• UK 10-year gilt yield: down 1.6 BP to 5.365%
• France 10-year OAT yield: down 0.1 BP to 4.688%
• Germany 10-year Bund yield: up 0.2 BP to 3.599%
• Italy 10-year BTP yield: down 3.4 BP to 4.509%
• Spain 10-year bond yield: down 0.4 BP to 4.076%

U.S. Treasury Market: Yields Mostly Decline

On Friday, September 25, U.S. Treasury yields mostly declined:

• 2-year yield: down 6.23 BP to 4.852%
• 3-year yield: down 7.38 BP to 4.924%
• 5-year yield: down 6.97 BP to 4.984%
• 10-year yield: down 3.94 BP to 5.156%
• 30-year yield: up 0.44 BP to 5.486%