China Bond Pricing System Bond Information Department China

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China. Bond Pricing System Bond Information Department China Government Securities Depository Trust & Clearing

China. Bond Pricing System Bond Information Department China Government Securities Depository Trust & Clearing Co. Ltd

Contents 1. 2. 3. 4. Background of CGSDTC Introduction to China. Bond Pricing System

Contents 1. 2. 3. 4. Background of CGSDTC Introduction to China. Bond Pricing System Examples Data Delivery Channel

1. Background of CGSDTC § § China Government Securities Depository Trust & Clearing Co.

1. Background of CGSDTC § § China Government Securities Depository Trust & Clearing Co. , Ltd. (CGSDTC) was set up in 1996, undertake the function of centralized depository and inter-bank bond market settlement. In order to promote China bond market development, CGSDTC started yield curve research since 1999.

2. Introduction to China. Bond Pricing System

2. Introduction to China. Bond Pricing System

2. Introduction to China. Bond Pricing System 2. 1 Main Development 2. 2 Key

2. Introduction to China. Bond Pricing System 2. 1 Main Development 2. 2 Key Characteristics 2. 3 Business Scope 2. 4 China. Bond Pricing System Structure 2. 5 China. Bond Pricing Process

2. 1 Development of China. Bond Pricing System n n n Research Stage(1999 -2001):

2. 1 Development of China. Bond Pricing System n n n Research Stage(1999 -2001): The first treasury bond yield curve was created under the Discounted Cash Flow (DCF) method. Development Stage (2002 -2005): Four yield curves, i. e. Interbank Treasury Bond, Exchange Treasury Bond, Treasury Bond (compounded) and Floating interest rate Treasury Bond, and Indices for Treasury Bond (Inter-bank and Exchange) were worked out by CGSDTC. The method of quadratic polynomial was adapted at this stage. Initial Application Stage (2006 -now): CGSDTC has worked out a wide variety of yield curves and indices; the study and analysis for bond pricing are rapidly improved. July 2007: CSRC requires all mutual funds must use CGSDTC’s daily valuation to calculate NAV (net asset value) Oct 2007: CBRC authorized China. Bond Yield curves as the benchmark of Treasury bond, Policy bank Bond & Central bank bills.

2. 2 Key Characteristics Neutral n n n Objective Professional Experience CGSDTC is an

2. 2 Key Characteristics Neutral n n n Objective Professional Experience CGSDTC is an independent third party, its valuation is objective and fair ; Only concentrated on fixed-income products, has a high quality and professional team in this area; Comprehensive and reliable data source to ensure consist and market neutral valuation; Incorporate a fast and convenient market feedback mechanism with customers; Almost 60 market members providing daily valuation on key terms of yield curves, adding extra value to bond valuation

2. 2 Key Characteristics Transparent n n The bond pricing process is transparent and

2. 2 Key Characteristics Transparent n n The bond pricing process is transparent and provide full documentation of valuation methodology to clients Daily and Monthly “China. Bond Yield Curve Analysis” is available on the website “ Annual China. Bond Yield Curve Quality Report” is provided to the market Great Customer Support

2. 3 Business Scope n n n Daily Mark-to-Market Yield Curves and Indices Bond

2. 3 Business Scope n n n Daily Mark-to-Market Yield Curves and Indices Bond valuations on a daily basis at INDIVIDUAL bond level (about 1300 bonds /day) Monthly Bond Market Statistics Service Bond Market Database (maturity, coupon, freq, type, issuer, credit rating, settlement volume & price, etc) Bond Market Research and Analysis Report Bond market analysis tool

2. 4 Structure China. Bond Pricing System China. Bond Yield Curve China. Bond Valuation

2. 4 Structure China. Bond Pricing System China. Bond Yield Curve China. Bond Valuation China. Bond Indices

China. Bond Yield Curve Inter-bank Market Treasury Bond Central Bank Bill Floating/ Fix Rate

China. Bond Yield Curve Inter-bank Market Treasury Bond Central Bank Bill Floating/ Fix Rate Policy Bank Bond Commercial Bank Bond Corporate Bond Floating/ Fix Rate China Fixed-rate Treasury Bond Exchange Market Treasury Bond Corporate Bond Commercial Paper Floating/ Fix Rate ABS Floating/ Fix Rate

China. Bond Index Aggregate Indices Composite Indices Central Bank Paper Index Commercial Paper Index

China. Bond Index Aggregate Indices Composite Indices Central Bank Paper Index Commercial Paper Index BY ISSUER • Gov. Bond Index • Financial Bond Index • Corporate Bond Index • …. . . BY COUPON • Fixed Rate • Floating Rate Account Indices Custom Indices Client A AI Client B AI BY MARKET • Inter-bank Market • Exchange Market BY MATURITY • Long term • Middle & Short term

2. 5 China. Bond Pricing Process Market Analysis Data Selection Building YC Bond Valuation

2. 5 China. Bond Pricing Process Market Analysis Data Selection Building YC Bond Valuation Bond Indices Gov. Policy / Money Market / Economic Factors Key Issuance/ Observation / Past Trend Inter-bank bid/ask quotation data and settlement price Commercial bank counter quotation data Exchange market closing price Valuation data provided by market members Hermite Model + Bootstrapping Pricing ALL Bonds Composite Index (18 sub-indices) Constituent Index (2 sub-indices) Account Index (800 individual account indices)

3. Examples

3. Examples

3. Examples n China. Bond Yield Curves n China. Bond Indices

3. Examples n China. Bond Yield Curves n China. Bond Indices

3. 1 Comparison of Market Price China Inter-bank Treasury Bond Yield Curve as of

3. 1 Comparison of Market Price China Inter-bank Treasury Bond Yield Curve as of 20/11/2007

3. 2 Comparison of Market Price China Exchange Treasury Bond Yield Curve as of

3. 2 Comparison of Market Price China Exchange Treasury Bond Yield Curve as of 20/11/2007

3. 3 Members’ Valuation China Inter-bank Policy Bank Bond Yield Curve as of 20/11/2007

3. 3 Members’ Valuation China Inter-bank Policy Bank Bond Yield Curve as of 20/11/2007

3. 4 Different Curves Comparison of Three Different Curves as of 20/11/2007

3. 4 Different Curves Comparison of Three Different Curves as of 20/11/2007

3. 5 Comparison of Different Curves Comparison of Credit Bond Yield Curves as of

3. 5 Comparison of Different Curves Comparison of Credit Bond Yield Curves as of 20/11/2007

3. 6 Historical Trend Tread of 5 -YEAR China Inter-bank Treasury Bond Yield Curve

3. 6 Historical Trend Tread of 5 -YEAR China Inter-bank Treasury Bond Yield Curve (08/01 -2007 -20/11/2007)

3. 7 Comparison of Yield Curves at Different Date China Inter-bank Central Bank Bill

3. 7 Comparison of Yield Curves at Different Date China Inter-bank Central Bank Bill Bond Yield Curve

3. 8 Space Curve China Inter-bank Treasury Bond Yield Curve (08/10 -2007 -20/11/2007)

3. 8 Space Curve China Inter-bank Treasury Bond Yield Curve (08/10 -2007 -20/11/2007)

3. 9 China. Bond Index China. Bond Aggregate Index (07/09/2005 -23/11/2007)

3. 9 China. Bond Index China. Bond Aggregate Index (07/09/2005 -23/11/2007)

3. 10 China. Bond Index China. Bond Aggregate Index (as of 23/11/2007)

3. 10 China. Bond Index China. Bond Aggregate Index (as of 23/11/2007)

3. 11 Comparison of Composite Indices (07/03/2005 -23/11/2007) Fixed-rate Treasury Bond Index Fixed-rate Finance

3. 11 Comparison of Composite Indices (07/03/2005 -23/11/2007) Fixed-rate Treasury Bond Index Fixed-rate Finance Bond Index

3. 11 Daily China. Bond Valuation

3. 11 Daily China. Bond Valuation

4. Data Delivery Channel

4. Data Delivery Channel

Data Delivery Channel China. Bond TERMINAL China. Bond Daily Pricing WEB DOWNLOAD DIRECT DATA

Data Delivery Channel China. Bond TERMINAL China. Bond Daily Pricing WEB DOWNLOAD DIRECT DATA FEED INFORMATION PROVIDERS Excel / DBF/ XML Excel download File to file transfer direct into client’s system Reuters / Wind / FC

Bond Valuation Team Tel: 0086 -10 -88170613/0615/0616/0617/0620 Fax: 0086 -10 -66061883 Email: zhaoling@chinabond. com.

Bond Valuation Team Tel: 0086 -10 -88170613/0615/0616/0617/0620 Fax: 0086 -10 -66061883 Email: [email protected] com. cn Website: www. chinabond. com. cn