China’s central bank, the People’s Bank of China (PBOC), has announced plans to utilize hundreds of billions of yuan worth of bonds to manage market conditions, a move aimed at curbing a robust bond rally, according to statements provided to Reuters on Friday.
The PBOC disclosed that it will engage in open-ended, unsecured borrowing of medium- and long-term bonds, intending to adjust bond sales in response to prevailing market dynamics. The bank has already entered agreements with several major financial institutions for bond borrowing.
This strategy follows a period of strong performance in China’s sovereign bonds, marked by record-low yields amid economic uncertainties and volatile stock markets, which have driven investors towards fixed-income securities.
On Friday, China’s treasury bond futures experienced broad declines, coinciding with an increase in bond yields, which move inversely to prices.
Ming Ming, chief economist at CITIC Securities, noted that the PBOC’s latest statements provide clarity on its borrowing and potential bond sales strategy. “Given the substantial size of treasury bonds available to the central bank, a concentrated selling effort could exert significant influence on the market in a single day,” Ming stated.
Earlier this week, the PBOC had announced its intention to borrow treasury bonds from primary dealers, outlining a plan aimed at stabilizing domestic interest rates.
The central bank’s forthcoming bond borrowing will pave the way for potential bond sales, introducing a new tool to manage credit flow and market yields.
Julian Evans-Pritchard, head of China economics at Capital Economics, remarked, “In the absence of broader monetary tightening measures, which do not seem imminent, the PBOC’s likely objective is to engineer a temporary pause in the bond rally.”
PBOC Governor Pan Gongsheng had hinted at the Lujiazui Forum last month about potential involvement in the secondary bond market.
In May, the central bank had stated its readiness to sell low-risk debt, including government bonds, as needed, while closely monitoring market developments and risks.
