PBoC governor Pan Gongsheng has said the central bank will resume trading in the open market, without specifying the timing. — Bloomberg
BEIJING: The People’s Bank of China (PBoC) is likely to resume debt purchases, marking the central bank’s return to bond trading for the first time since January, analysts say.
They expect the move to support the economy, as the PBoC’s bond purchases would help improve cash conditions.
It would also ease market volatility spurred by investor rotation into equities, which have been surging on the back of improved US–China trade ties.
“The PBoC’s bond trading may focus on net buying in the short run,” Shenwan Hongyuan Securities analysts, including Huang Weiping, wrote in a note.
“The current expansion of government credit serves as an important engine for supporting economic and social development,” they wrote.
PBoC governor Pan Gongsheng said on Monday that the central bank will resume trading in the open market, without specifying the timing.
The central bank had halted its bond trading earlier this year due to an imbalance in debt demand and supply, as well as an increase in market risk, Pan said.
China’s central bank bought a net one trillion yuan (US$141bil) of sovereign notes for five straight months through December, after starting regular bond transactions with primary dealers in August 2024.
The January suspension came as economic pessimism drove yields to record lows.
Bond yields have rebounded since then, with the benchmark 10-year yield touching its highest level this year in September, lowering the bar for PBoC purchases. Following the PBoC’s comments, futures on the notes climbed to the highest since August, signalling rising expectations for the central bank to restart buying bonds.
The PBoC will now have to buy an additional 700 billion to one trillion yuan of sovereign debt to replenish its inventory, according to Guosheng Securities.
The central bank’s sovereign debt portfolio shrank by 660 billion yuan to 2.22 trillion yuan from December to September as some notes matured, Yang Yewei, the firm’s chief analyst, wrote in a note.
In terms of tenors, Huaxi Securities expects the PBoC to buy both short-dated and mid-to-long-term Chinese government bonds.
Net supply of government bonds this year in the five to 10-year tenors has risen, which may prompt the PBoC to add longer-dated bonds in this round, the firm’s analysts, including Liu Yu, wrote in a note. — Bloomberg
