SHANGHAI/HONG KONG (Aug 30): China's central bank said on Friday it had bought a net 100 billion yuan (US$14 billion or RM60.4 billion) worth of government bonds in August, unveiling for the first time details of its new operations to manage prices in the bond market.
The announcement was made under the central bank's newly-added section on buying and selling of government bonds via open market operations on its website.
The People's Bank of China (PBOC) said it bought short-dated bonds and sold long-dated bonds during the month, reflecting its intention to shape the yield curve and improve monetary policy transmission.
The central bank has long pledged to add treasury bond buying and selling to its policy toolkit, to help manage cash conditions and interest rate risks, taking its cue from an October 2023 speech by President Xi Jinping.
The move "is not too surprising as policymakers may be hoping for a healthier curve steepening," said Lynn Song, China economist at ING.
State media Securities Times said this was the first time China's central bank has bought and sold bonds in the secondary market.
In July, the PBOC announced it has hundreds of billions of yuan worth of bonds at its disposal to sell. The bank said the borrowing was on an open-ended and unsecured basis.
Buying short-dated bonds — which would push down short-term yields and add depreciation pressure on the yuan — has been made possible because of the recent strength in the Chinese currency, Song said.
"If there is no further follow-up, the impact should be relatively short lived as the fundamentals have not changed yet, but this action does send a policy signal to markets."
Chinese treasury yields edged down after the news.
Some market participants said the new operation could help adjust cash supplies in the market, in addition to the existing tools such as the medium-term lending facility (MLF).
"We expect the PBOC to continue such operations in the foreseeable future," said Becky Liu, head of China macro strategy at Standard Chartered.
"This is essentially an operational twist, in our view," she said, and expects the PBOC to buy more bonds than it sells, or do equal amounts of buying and selling, so that it does not withdraw any cash from the banking system or shrink its balance-sheet.
The PBOC's bond market operations come after a prolonged rally in China's sovereign bonds as banks and investors seek safe assets in a flailing economy. The central bank warned market participants for weeks about the inflated prices of bonds, which have driven yields to record lows.
The announcement came a day after the PBOC said it bought 400 billion yuan worth of long-dated special government bonds from primary dealers. Liu said in theory they are available for sale in the secondary market.
Uploaded by Magessan Varatharaja