(Bloomberg) -- China’s central bank bought special government bonds from the market on Thursday, in an expected move to minimize the chance of suddenly tighter liquidity after the government rolled over the debt in a private placement.
The People’s Bank of China bought 400 billion yuan ($56.3 billion) of the bonds from primary dealers, it said in a statement on Thursday. The notes were sold by the Ministry of Finance to designated domestic lenders earlier in the session, as the same amount of them expired.
The move is receiving attention as traders mull when or whether the central bank may start trading bonds to affect government bond yields. But the operation on Thursday, which was conducted in at least 2022 and 2017, doesn’t serve that purpose.
Bets on PBOC starting to trade debt in the secondary market mounted since late Wednesday, as the central bank created a new section on its website about its “buying and selling of government bonds.” 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 tame a rally.
By having the PBOC purchase the bonds from banks after the auction, China can limit any shocks to liquidity conditions as large issuances can mop up funding in the money market.
The MOF had disclosed the roll-over plan more than a week ago and mentioned the PBOC will conduct relevant open-market operations. The issuance pattern is a continuation of similar practices in previous years and these operations won’t add to China’s fiscal budget, the finance ministry said in another notice.
The move was the second time that the debt was rolled over after being issued by MOF in 2007. Along with other batches, the special bonds were raised as part of a combined 1.55 trillion yuan of funds back then to set up China Investment Corp, the nation’s sovereign wealth fund.
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