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Bank bonds surge on speculation PBoC has begun silent QE

(ATF) A gauge of Chinese financial bonds climbed Thursday amid speculation the nation’s central bank is quietly buying bonds, lifting the outlook for a new round of asset-purchase stimulus that tends to benefit banks.

The benchmark ATF China Bond 50 Index was flat after a coupon payment by real estate firm Lianfa Group dragged down the ALLINDEX Corporates index. Such payments tend to send a bond’s price lower because they reduce the future earnings of the fixed-income asset.

The ATF China Bond 50 Index closed flat on Thursday

A 0.02% rise in the ALLINDEX Financials index was cancelled out on the ATF CB50 by a 0.11% slide in the Corporates Index. Enterprises added 0.02% and Local Governments advanced 0.01%. 

The CB50 has fallen for the past three months as the People’s Bank of China (PBoC) put the brakes on post-coronavirus stimulus measures that had been suppressing bond yields and making riskier assets more attractive to yield-hungry investors. Yuan strength relative to the US dollar and signs of the increasing stability of China’s economic recovery are also making Chinese bonds attractive to overseas investors.  

Despite a pledge this week from PBoC governor Yi Gang to keep monetary policy dovish, reports in Asia Times Financial and other media suggest the central bank bought sovereign bonds in July. Such de facto quantitative easing, designed to inject liquidity into the banking system so that lenders can offer more credit to businesses, benefits domestic banks because they hold the lion share of government bonds.

Among the biggest financial gainers were Huishang Bank, Chongqing Rural Bank and China Merchants Bank.

READ MORE: With eyes on foreign inflows, China tackles bond defaults

Mark McCord

Mark McCord is a financial journalist with more than three decades experience writing and editing at global news wires including Bloomberg and AFP, as well as daily newspapers in Hong Kong, Sydney and Melbourne. He has covered some of the biggest breaking news events in recent years including the Enron scandal, the New York terrorist attacks and the Iraq War. He is based in the UK. You can tweet to Mark at @MarkMcC64371550.


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