China’s Central Bank Purchases 200 Billion Yuan in Sovereign Bonds in September, According to Reuters

SHANGHAI – The Chinese central bank announced on Monday that it purchased 200 billion yuan (approximately $28.52 billion) in government bonds through open-market operations in September.

Last week, long-term bond yields in China experienced a notable turnaround after reaching historic lows. This shift came on the heels of substantial stimulus measures and additional plans unveiled by the central bank and government authorities aimed at revitalizing the sluggish economy.

The People’s Bank of China (PBOC) stated that the operation aimed to "strengthen counter-cyclical adjustment of monetary policy and maintain reasonably ample liquidity in the banking system." However, the bank did not clarify whether it had bought or sold short-term or long-term bonds this time around.

Prior to last week, China’s bond market enjoyed a prolonged rally, with banks and investors gravitating toward safer assets in the face of economic challenges. The central bank had cautioned market participants for weeks about the inflated bond prices and had sold long-dated bonds the previous month to temper the overheating market.

Wei Li, a portfolio manager at BNP Paribas Asset Management, noted, "Ultimately, the PBOC’s goal of maintaining an upward-sloping yield curve supports lower short-term yields to stimulate economic growth and higher long-term yields to encourage investment."

Last week, China introduced its most aggressive stimulus initiative since the pandemic began, leading to significant gains in the stock market, although bond prices subsequently fell sharply.

Li added, "It’s possible that some funds may shift from bonds to equities, especially with market participants anticipating stronger growth prospects and higher returns from stocks. However, this shift may not be dramatic." He emphasized that the sustainability and impact of these policy measures would be crucial in driving economic recovery and influencing investor sentiment.

Since last Wednesday, yields on ten-year and 30-year bonds surged by 13 and 22 basis points, respectively. The spread between 1-year and 10-year bonds also widened by 15 basis points, indicating a steepening yield curve.

According to official data, assets in Chinese bond mutual funds fell for the first time this year in August, declining to 6.55 trillion yuan, down 6% from the previous month.

The rapid reversal in yields suggests that the PBOC may soon consider purchasing long-term bonds, which would mark a significant shift from its prior actions.

In August, the central bank disclosed its purchase of short-term bonds and sale of long-term bonds, marking the first detailed report in a newly established open-market operations column.