The issuance of trillions of ultra-long-term special treasury bonds has revealed a major signal

Luo sir's words

2024-05-18 15:28Posted in Sichuan Workplace Creators

Historically, the mainland has issued three rounds of special treasury bonds, in 1998, 2007 and 2020, to replenish the capital of commercial banks, purchase foreign exchange to inject capital into CIC, and fight the epidemic.

On May 17, the Ministry of Finance issued 40 billion yuan of 30-year ultra-long-term special treasury bonds with a coupon rate of 2.57%, which will be paid on May 20 and November 20 each year, and will be repaid until May 20, 2054.

According to the plan, the Ministry of Finance will issue 1 trillion yuan of ultra-long-term special treasury bonds this year.

The biggest "special" feature of special government bonds compared with general government bonds is that although they are still debts, they are not included in the fiscal deficit, and the mainland's fiscal deficit rate target has been 3% for many years, and according to the Fudan Center for Financial Research, taking 3% is one of the thresholds for the European Union's accession in 1993: the deficit rate is less than 3%.

If we do not include this special treasury bond, there have only been three rounds of special treasury bonds issued in mainland China's history, namely in 1998, 2007 and 2020, corresponding to the Asian financial crisis, the US subprime mortgage crisis and the new coronavirus, respectively.

In the first two rounds of subscriptions, these special treasury bonds were basically institutional bonds, and in 2020, due to the special purpose and urgency of the special treasury bonds, they were jointly subscribed by financial institutions, enterprises and residents.

Today, only four years later, the re-issuance of government bonds, although this is special, can also glimpse the "unusual" behind it.

In 1997, the round of treasury bonds was issued to the four major banks of "Workers, Peasants and China Construction", and the specific method at that time was that the central bank lowered the deposit reserve ratio, and about 240 billion yuan of deposit reserves of the four major banks became excess deposit reserves, plus the original excess reserves of 30 billion yuan, a total of 270 billion yuan of reserves were deposited in special accounts according to the requirements of the central bank.

In August, the four major banks subscribed to the Ministry of Finance for 270 billion yuan of special treasury bonds, and the Ministry of Finance used the money to inject equal amounts of capital into the four major banks, and the ultimate holder of the treasury bonds was actually the central bank.

By 2007, 1.55 trillion yuan of special treasury bonds had been issued, of which 1.35 trillion yuan was issued by the Ministry of Finance to the Agricultural Bank of China and 0.2 trillion yuan was issued to the public.

This year, according to the Southern Metropolis Daily, the previous issues of special treasury bonds are expected to be most likely to be taken over by institutions, and the report quoted a staff member of the Agricultural Bank of China as saying that the special treasury bonds of the Agricultural Bank are now only open to securities, insurance and other financial institutions.

This year's trillion yuan of ultra-long-term special government bonds will improve our chances of achieving this year's 5% growth target, and ANZ strategists even expect that this round of government bond issuance will increase the mainland's GDP by up to one percentage point.

From this point of view, the leverage behind this round of trillions of treasury bonds is still very large.

The timing of the issuance of Treasury bonds is to hedge against the impact of the United States' tariffs on mainland goods, and at the same time to eliminate uncertainty about economic expectations as much as possible before the July plenum.

And the reason why I chose special treasury bonds this time is not because of the national bonds, in fact, there are also exquisite considerations behind it; During the subprime mortgage crisis in 2008, the mainland launched a $4 trillion economic stimulus package, a large part of which was paid in the form of local bonds, which was inefficient and pushed up today's local debt.

The Ministry of Finance will also be able to prevent the recurrence of local leverage and the uncertainty of economic risks to a certain extent.

Of course, the most important thing is that the special government bonds are not included in the deficit.

According to a January report by the National Finance and Development Laboratory, the mainland's overall debt-to-GDP ratio climbed to a record high of 287.8% in 2023, the highest leverage ratio on record and 13.5 percentage points higher than the same period last year.

From this point of view, there is a huge difference between the rise in the mainland's debt and the real growth rate of GDP, and the diminishing marginal returns are very obvious, and the mainland's economic growth rate last year was less than half of the growth rate of debt.

Fitch, an international rating agency, downgraded the mainland's credit rating outlook to "negative" from "stable" on April 10 this year, citing increasing uncertainty and risks to public finances as the mainland economy transitions to a new growth model.

These are all things to worry about.

The issuance of bonds itself has very prominent advantages and can stimulate the economy and consumption; But the disadvantage is just as obvious, that is, there is a risk of increased leverage.

The main purpose of this round of government bonds is to replenish the capital of domestic banks, but given the decline in new bank loans, it is likely that more long-term bonds will be issued, which can reduce long-term financing costs.

As the market expects a further downturn, more stimulus may need to be used to stimulate sluggish confidence in the future, but this stimulus itself comes at a cost and a price.

Conversely, effective institutional construction may be a more effective approach than real money incentives with costs and costs.

Using leverage to stimulate the economy will eventually be repaid.

end.

Author: Luo sir, concerned about the economy, society and everything in our world, curious about the logic behind the development of things, optimistic pessimist.

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