(Bloomberg) -- China’s central bank created a new section for its bond-trading operations on its website, stoking speculation it may soon start buying or selling sovereign debt.
Under a web page about its open-market operations, the People’s Bank of China added a section for statements on “buying and selling of government bonds” late Wednesday. Various theories analyzing the central bank’s intentions have emerged since — some say it may sell a part of its holdings soon to tame the bond rally, while others argue it will buy debt from lenders that have participated in a private auction.
“The move means PBOC sees a good window for it to start regular government-bond buying and selling in the open market and improve the coordination of monetary and fiscal policies,” said Ming Ming, chief economist at Citic Securities Co. “It’s a move that can benefit the real economy.”
Bond traders have been waiting since March to see when and if the PBOC will start trading government debt, after an old speech by President Xi Jinping flagged such an operation as a potential tool to manage liquidity. In July, the central bank said it has “hundreds of billions” of yuan of the securities at its disposal through agreements with lenders — a sign it was ready to sell them to curb the bull run. However, further policy guidance on that has been scarce.
At least until mid-August, there was a bigger chance for the PBOC to sell bonds as a blistering rally in government debt led authorities to initiate stress tests with financial institutions to limit risks and prompted them to deliver harsh verbal warnings to speculators.
But last week, China’s finance ministry said the PBOC can conduct open-market operations with relevant banks that have participated in private rollover auctions of special bonds on Thursday. In this case, the central bank may buy the bonds to minimize the impact on market liquidity. It made similar moves in at least 2022 and 2017.
No matter what the PBOC does, the speculation underscores vigilance toward regulatory actions amid swings in the debt market. Yields sank to record lows earlier this month as investors lapped up government debt amid signs of economic slowdown, before rebounding on fears of an official crackdown on the rally.
Over the weekend, Bloomberg News reported that the central bank sees risks in a buying spree of the securities and believes a persistent slide in long-term yields is not sustainable. However, it did not seek to nor will it seek to ban legitimate investments or trading in its government bonds, people familiar with the PBOC’s thinking said.
The yield on 10-year government bonds rose one basis point to 2.16% on Thursday, trimming some of its decline in the previous session.
“The PBOC is trying to release policy signal to the market indicating that it wants more policy transparency,” said Gary Ng, senior economist at Natixis SA. “This lays foundation for future government bond trading.”
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