China's PBOC Buys Special Government Bonds After Government Rolls Over Debt

China's central bank has purchased billions in special government bonds from primary dealers, in a much-expected move to offset the liquidity drain after the government rolled over some of its debt.

The People's Bank of China bought 400 billion yuan, the equivalent of $56.13 billion, of long-dated treasury bonds, according to an official notice published Thursday. This came shortly after the country's finance ministry sold the notes to designated commercial lenders earlier in the day, as the same amount of debt expired.

While investors have speculated for months over when the PBOC will restart bond trading on secondary markets as a regular monetary tool, the move on Thursday, as well as similar operations conducted previously, including in 2017 and 2022, doesn't fulfill that purpose.

The publication earlier this year of remarks made by President Xi Jinping last October had sparked speculation over whether the central bank would engage in the trading of bonds to boost liquidity in the still-fragile Chinese economy.

Under Chinese law, the PBOC is prohibited from directly purchasing government bonds in primary markets, and it has generally refrained from such purchases in secondary markets in the past 20 years.

China's central bank chief, Pan Gongsheng, said in a speech in June that the PBOC's trading in bonds will be a liquidity management tool that includes both buying and selling and won't be a form of massive monetary easing.

While it remains unclear when the PBOC will start to trade bonds on secondary markets, as a monthslong bond frenzy continues, the PBOC has suggested it's ready to step into the market, but as a seller, contrary to what investors have wished.

Chinese state media reported last month that the PBOC had signed agreements with major brokers to borrow "hundreds of billions" of yuan worth of government bonds and was ready to sell, a move analysts say is likely aimed at stabilizing plummeting long-term bond yields that have been pushed to record lows amid surging haven demand in safety assets like treasury notes as the economy falters.

China's central bank has repeatedly warned against the bond rally, saying it is worried that a sudden reversal in the market could incur steep losses for investors snapping up the notes.

But economists say those concerns are overblown, suspecting the real reason for authorities' displeasure is the message conveyed through the enthusiasm for government bonds: a lack of confidence in China's economic growth.

Write to Singapore Editors at singaporeeditors@dowjones.com

(END) Dow Jones Newswires

August 29, 2024 07:33 ET (11:33 GMT)

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