SHANGHAI: China's central bank on Wednesday urged financial institutions to guard against interest rate risks when trading in bonds, signalling discomfort among policymakers over recent frenzied buying that has helped drive yields sharply lower.
The People's Bank of China (PBOC) held meetings with some financial institutions who were engaged in aggressive bond trading activity in the current rally, the Financial News, a central bank publication, reported.
"It doesn't seem like it's just some institutions. We are very conservative and not aggressive in our positions," a source whose firm was invited to the meeting told Reuters.
At the meeting, the PBOC also vowed zero tolerance towards bond market "misbehaviours", the newspaper said.
China's interbank market regulator said earlier this month that four rural commercial banks in Jiangsu Province had inadequate internal controls over bond trading and some of their transactions involved the transfer of benefits.
China's 10-year and 30-year treasury yields both climbed over 5 basis points on the PBOC news.
Prices of China's bond futures, which move inversely to yields, fell sharply.
Reuters reported last week that the central bank was surveying some banks on their bond investment activities.
China's bond yields are hovering near record lows as investors head into 2025 betting there will be no robust recovery in the economy.
The 10-year benchmark yield slumped nearly 20 basis points last week - the biggest weekly decline since April 2018.
China's leaders last week pledged to cut interest rates and banks' reserve ratios to counter the impact of an expected hike in U.S. trade tariffs, while the Politburo promised to switch to an "appropriately loose" monetary policy stance.
Dongxing Securities expects China's bond market to remain bullish next year, with smaller banks and insurers remaining keen buyers. However, the brokerage also cautioned that market volatility could rise. - Reuters
