Type to search

China’s Central Bank Moves to Cool Bonds Market Trading

PBOC says it has signed deals with major financial institutions to borrow medium- and long-term bonds and will sell them depending on market conditions in a bid to cool a major rally

China's Central Commission for Discipline Inspection is investigating PBOC former head of monetary policy Sun Guofeng.
The People's Bank of China want to help stabilise the bonds market. (Reuters file image).


China’s central bank said on Friday it has bonds worth hundreds of billions of yuan at its disposal to borrow, and will sell them depending on market conditions.

The news from the People’s Bank of China (PBOC) is part of a plan seen as an effort to cool a powerful bond rally.

The PBOC will borrow medium- and long-term bonds on an open-ended unsecured basis, as it has signed agreements with several major financial institutions in regard to the bonds, it said.


ALSO SEE: India ‘Asks Utilities to Order $33bn in Gear to Lift Coal Output’



The official remarks come at a time China’s sovereign bonds have performed strongly this year, with yields hitting record lows, as a wobbly economy and volatile stock markets pushed savers into fixed-income safe haven investments.

China’s treasury bond futures fell across the board on Friday, while bond yields, which move inversely to prices, went up.

Ming Ming, chief economist at CITIC Securities, said the comments further clarified the central bank’s borrowing and subsequent selling of treasury bonds.

“With the size of the treasury bonds at the central bank’s disposal reaching hundreds of billions of yuan, a single day of concentrated selling will have a significant impact on the market,” Ming said.


Possible sales of treasury bonds

China’s central bank said earlier this week it would borrow treasury bonds from some primary dealers soon, outlining the specifics of a plan analysts say is aimed at putting a floor under plunging domestic interest rates.

The PBOC’s borrowing of treasury bonds will set the stage for possible treasury bond selling, a new tool that will help it control the flow of credit and market yields.

“Without wider monetary tightening, which doesn’t appear to be on the cards, the best the PBOC can probably hope to achieve is to engineer a short-term pause to the bond rally,” said Julian Evans-Pritchard, head of China economics at Capital Economics.

PBOC Governor Pan Gongsheng hinted at the Lujiazui Forum last month that the central bank might soon start trading in the secondary bond market.

The central bank said in May it would sell low risk debt including government bonds when necessary, while paying close attention to current bond market changes and potential risks.


  • Reuters with additional editing by Jim Pollard



China Central Bank’s Bond Trading Goal Hit by ‘Asset Famine’

China Seen Freezing Lending Rate, Cutting Mortgage Benchmark

China Pins Hopes on ‘Heavyweight’ Property Sector Rescue Bid

China Told it Must ‘Reinvent Itself’ to Turn Economy Around

China Bonds Bonanza Fuelled by ‘Asset Famine’, Property Woes

Indebted Provinces Seek Help From State Banks in Beijing – FT

Foreign Investment in China Slumps 20% in January-February

China Holds Firm on Rates But Deflation Worries Weigh


Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


AF China Bond