China’s central bank said on Monday (Jul 1) that it would borrow treasury bonds from some primary dealers in open market operations in the near future, in what traders and analysts believe is a move to stabilise plummeting yields.
The country’s sovereign bonds had a long bullish streak this year, with yields hitting record lows as investors scrambled for fixed-income safe havens amid a wobbly economy and volatile stock market.
Those declines have heightened concerns among policymakers that sharp speculative-driven moves could unwind rapidly, triggering financial instability.
The plan was “based on prudent observation and evaluations of current market situations,” the People’s Bank of China (PBOC) said in an online statement.
It added that the central bank will maintain stable operations of the country’s bond market.
Yields on China’s 10-year and 30-year treasuries rose nearly 4 basis points following the statement.
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The PBOC’s statement on Monday follows a series of hints dropped by officials this year and traders and analysts believe the central bank will now start trading treasury bonds in the secondary market.
“It’s certainly a signal that the PBOC will enter the secondary bond market,” said a bond fund trader.
The central bank said in May that it would sell low risk debt including government bonds when necessary, while paying close attention to current bond market changes and potential risks.
PBOC governor Pan Gongsheng signalled at the Lujiazui Forum last month that the central bank might soon start trading in the secondary bond market as yields continue to fall.
The PBOC had previously bought bonds in 2007 for the creation of the sovereign wealth fund China Investment Corp.
The bank only holds US$209.14 billion worth of bonds, about 5 per cent of the treasury bonds in circulation and 1.4 per cent of all the local bond holdings worth US$14.6 trillion by Chinese entities. REUTERS
