CHINA’S central bank asked some financial institutions to report daily changes in their long-term treasury bond positions and balances, four people familiar with the matter said on Monday (Aug 5), as a bond market rally reached unprecedented levels.
Demand for China’s sovereign bonds has surged this year, with yields hitting record lows, as investors seek safe-haven investments in the face of a slowing economy and volatile stock markets.
This has heightened concerns among policymakers that such moves could create a bubble and trigger financial instability.
The People’s Bank of China (PBOC) did not clearly say why it requested the daily report, according to the sources and the central bank did not immediately respond to a Reuters request for comment.
Yields on China’s 30-year treasuries dropped as much as four basis points on Monday to a record low of 2.2925 per cent.
The latest round of checks comes after the PBOC surveyed some regional banks on their bond investments in July and March.
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Apart from the survey, the central bank has also sounded warnings and announced steps, including plans to sell treasury bonds, to cool the long-running bond rally.
The PBOC said last month that it had hundreds of billions of yuan worth of bonds it could sell to put a floor under plummeting long-dated yields.
The 30-year bond futures for September delivery rose more than 1 per cent on Monday to finish at a record high. Holdings of the 30-year contracts have risen dramatically in the past months amid market speculation as to when the central bank might start selling the treasury bonds.
Yields on China’s 10-year and 30-year bonds have fallen around 48 basis points (bps) and 52 bps, respectively, so far this year.
However, state banks were seen offloading huge amounts of 10-year bonds in late trades on Monday, lifting the yields, according to traders. REUTERS
