August Local Bond Issuance Plan Hits 1.091 Trillion Yuan, New Monthly High Since 2026

The August local government bond issuance plan has been disclosed, with a total scale of RMB 1.091 trillion, surpassing March's RMB 981.5 billion to become the highest monthly issuance since 2026. Among this, new special bonds are planned at RMB 586.1 billion, accounting for over half of total new bond issuance. The current pace of local bond issuance remains generally slower than the same period in 2024, but the increased supply of new special bonds will help form physical workload as soon as possible, supporting the steady growth pace of the economy in the second half of the year. Some regions have proactively lowered their issuance plans, easing supply pressure.

Compared with the actual issuance of RMB 791.4 billion in July, the planned supply in August increased by about 37.9% month-on-month, indicating a significantly accelerated issuance pace. The combined scale of new general bonds and new special bonds reached RMB 710.6 billion, up about 59% month-on-month from July, accounting for over 80% of the total monthly supply increase. The single-month planned scale of new special bonds approached RMB 590 billion, reflecting the policy direction of continuously front-loading the issuance and use of special bonds. For refinancing bonds, the planned issuance in August is about RMB 380.4 billion, a slight increase of about 10.4% from July's RMB 344.6 billion, mainly used to repay maturing local government debt principal.

In terms of regional distribution, August local bond issuance shows regional divergence. The issuance plans of Sichuan, Guangdong, and Shandong all exceeded RMB 100 billion, ranking the top three nationally with RMB 150.4 billion, RMB 119.1 billion, and RMB 117.7 billion, respectively. Sichuan's new special bonds account for over 80% of its total, mainly directed to transportation infrastructure, municipal construction, and other areas. The issuance plans of Yunnan, Beijing, and Hubei also exceeded RMB 50 billion each in August.

Overall, the current pace of local bond issuance remains relatively slow. Based on the 2026 quotas of RMB 4.4 trillion for new special bonds and RMB 800 billion for new general bonds, the overall local bond issuance progress is 54.8%, with progress for new special bonds and new general bonds at 54.7% and 55.5%, respectively, all below the average for the same period from 2021 to 2025.

Recently, some small and medium-sized banks have lowered deposit rates, indirectly reducing bank liability costs and increasing institutions' willingness to allocate long-duration local bonds. Some trading desks are engaging in arbitrage around ultra-long-term bonds, while allocation desks, due to tight month-end funds and concerns about the risk of secondary market yield spreads widening from concentrated ultra-long local bond issuance, tend to realize floating profits at higher prices. The central bank has recently supported month-end liquidity through reverse repo operations.