China's central bank said it will borrow government bonds from dealers, in a move that economists say will pave the way for the monetary authority to sell the notes to tame an extended market rally.
The People's Bank of China has decided, after carefully observing and evaluating the current market situation, to borrow treasury bonds from some primary dealers in the near future, according to an official statement published Monday. It didn't specify when it would start borrowing.
The announcement came shortly after China's benchmark government yields fell to a record low in early trade Monday. While the yield on the 10-year bond rose after the statement was released, it remained below the 2.5%-3% range that the PBOC deems reasonable.
For months, markets have been watching for signs of PBOC bond purchases since the publication of an old speech by leader Xi Jinping last October that mentioned bond trading as a monetary policy tool. But economists now say the PBOC's planned move to borrow bonds suggests it may enter the market as a seller instead.
With the 10-year treasury bond yield falling to a historic low, the PBOC's possible sales will help stabilize long-term bond yields and guard against interest rate risks, CITIC Securities economist Ming Ming told the state-run newspaper Shanghai Securities News on Monday.
While the PBOC has stepped up its warnings against the fall in long-term yields amid a monthslong bond rally sparked by safe-haven demand, Chinese investors have continued to load up on low-risk assets like treasury bonds and gold as a prolonged property slump and stock-market volatility feed appetite for havens.
PBOC Governor Pan Gongsheng said last month the bank is working with the finance ministry to explore ways to include bond trading into its policy toolkit.
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07-01-24 0548ET
