China’s Central Bank Purchases Government Bonds, Sparks Intervention Discussion – Reuters

Central Bank of China Intervenes in Bond Market, Sparking Speculation

SHANGHAI – The People’s Bank of China (PBOC) has announced its first purchase of special government bonds from primary dealers in nearly two years, leading to renewed speculation about its intentions to intervene in the domestic debt market.

On Thursday, the central bank reported that it acquired 400 billion yuan (approximately $56.3 billion) in 10-year and 15-year government bonds through open market operations. This strategic move follows the establishment of a new section on the PBOC’s website dedicated to announcements regarding the buying and selling of government bonds, further fueling conjectures about a potential intervention.

For weeks, the PBOC has been alerting market participants about the high bond prices that have pushed yields to historic lows, as investors and banks seek refuge in safe assets amid an uncertain economic climate.

In July, the central bank indicated it had substantial quantities of bonds available for borrowing and would consider selling them based on market conditions. The recent bond purchase has led analysts to expect that the PBOC might soon sell these bonds to prevent yields from declining any further.

A fund manager, who requested anonymity, remarked that banks had initially acquired the treasuries from the finance ministry before reselling them to the PBOC, which appears prepared to subsequently release them back into the market.

Despite the bond purchase, yields remained largely unchanged. Traders highlighted a recent government decision to roll over a group of bonds maturing on Thursday, rather than redeeming them. Some analysts believe that the PBOC’s bond buying also aims to mitigate any potential adverse impact on cash conditions due to this rollover.

Currently, the 10-year government yield in China is trading at 2.17%, down approximately 40 basis points for the year.

Xing Zhaopeng, a senior strategist at ANZ, noted, “While initial concerns over long-term yields reduced, this announcement has reignited market anxieties.”

State banks have been observed selling bonds this month and often act on behalf of the central bank in such transactions. To help curb the ongoing bond rally, China’s securities regulator has directed certain brokerages to review their bond trading practices.

The last time the PBOC purchased special treasuries was in December 2022.