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China's Bond Market Dilemma: Where Are the Traders?

  • Local trading volumes are about 7 percent of levels in U.S.
  • Low liquidity makes it harder for yuan to cement global role
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Photographer: ChinaFotoPress/VCG via Getty Images
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A U.S. Treasury secretary once belittled the role of traders sitting in front of flickering green screens. But it turns out that China, for one, could use a lot more of them.

While in some respects China has made great strides developing a domestic bond market, a lack of frequent trading has worsened the recent rout in the securities. And, from a longer-term perspective, it’s thwarting the Communist leadership’s bid to elevate the global role of the yuan. The problem stems from the dominant role played by banks, which have less reason to make trades than money managers. Trading volumes on corporate notes in China are only about 7 percent of that in the U.S., according to data compiled by Bloomberg.