Jul 16, 2024 06:45 PM
FINANCE
PBOC Reaffirms Commitment to Stabilizing Bond Market as Rally Persists
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A citizen passes by the headquarters of the People's Bank of China on Chang'an Avenue in Beijing. Photo: VCG
China’s central bank is strongly committed to maintaining a normal upward-sloping yield curve and curtailing market risks amid the current bond rally, according to an article published Friday by Financial News, an outlet backed by the People’s Bank of China (PBOC).
“Market players should not underestimate the central bank’s resolve,” the article cited Zhang Xu, chief fixed-income analyst at Everbright Securities Co. Ltd., as saying.
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- China's central bank is taking steps, including borrowing government bonds and conducting repurchase agreements, to cool a bond rally and maintain a normal yield curve.
- Following July announcements, the 10-year bond yield rose initially but declined for four consecutive days starting July 9.
- Analysts suggest that the PBOC's measures aim to prevent risks similar to Silicon Valley Bank's collapse, though the effectiveness remains uncertain without increased economic confidence.
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Who’s Who
- Everbright Securities Co. Ltd.
- Everbright Securities Co. Ltd. is a prominent financial firm in China. Zhang Xu, the company's chief fixed-income analyst, emphasized the resolve of China's central bank in maintaining a normal upward-sloping yield curve and mitigating market risks amid a bond rally. The company is noted for its significant role and insights in analyzing China's bond markets.
- Yuekai Securities Co. Ltd.
- Yuekai Securities Co. Ltd. is an analyst firm that has warned about the risks of a bond bubble in China, likening the situation to the collapse of Silicon Valley Bank. The analysts highlight that SVB Financial Group faced massive losses due to a sudden drop in asset value caused by surging market interest rates.
- Morgan Stanley Asia Ltd.
- Morgan Stanley Asia Ltd. is referenced in the article, where analysts noted that the new overnight repo rate band announced by the PBOC shows the central bank's support for rate levels in China. The analysts made this observation in a note issued on July 8.
- SVB Financial Group
- SVB Financial Group, parent of Silicon Valley Bank, bought billions in long-term U.S. Treasuries and government-backed mortgage securities, considered safe assets. However, surging market interest rates caused a sharp decline in their value, leading to massive losses and the bank’s collapse. The PBOC is trying to prevent similar risks in China.
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What Happened When
- Before July 1, 2024：
- China's months-long bond bull run sends long-term government bond yields to record lows.
- June 2024：
- PBOC Governor Pan Gongsheng mentions that the seven-day reverse repo rate can be used as the main policy rate.
- July 1, 2024：
- PBOC announces it will borrow government bonds from primary dealers.
- By July 8, 2024：
- PBOC signs bond borrowing agreements with several major financial institutions.
- July 8, 2024：
- PBOC announces it will conduct overnight repos or reverse repos.
- From July 9, 2024 to July 12, 2024：
- 10-year government bond yield declines for four consecutive days.
- Friday, July 12, 2024：
- Financial News publishes an article on PBOC's commitment to maintaining a normal yield curve.
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