China's bond market will see another 2 trillion yuan ($312.5 billion) of bonds issued by local governments this year, testing the market's readiness over massive low-yield bond supply.

According to a statement issued by the Finance Ministry on Thursday, the top legislature has approved a 6 billion yuan new issuance quota, and a 3.2 trillion yuan quota to swap high-yielding legacy debt with new low-cost bonds to alleviate local government repayment pressures. Various regions this year so far have already sold 1.86 trillion yuan of bonds, which mean they could sell near 2 trillion yuan of bonds in the remainder of this year.

China in March, and then in June granted a 2 trillion yuan debt-for-bond swap quota. The market expected another 1 trillion yuan quota because the 2 trillion quota was not big enough to cover all the maturing debt this year.