(Bloomberg) -- Some Chinese government bonds that the nation’s central bank bought last week are now being sold in the secondary market, traders said, a possible sign that authorities are once again intervening to curb the debt rally.
The 10-year special sovereign notes, which the People’s Bank of China purchased from primary dealers last week, were offered by financial institutions in batches including 50 million yuan ($7 million) and 100 million yuan, according to traders. At least one deal went though Thursday afternoon at the yield of 2.125%, said the traders, who asked not to be named as the information is private.
Despite the PBOC’s constant push-back on a blistering bond rally, traders are wading back into the market on bets Beijing has to ease monetary policy to rejuvenate the sluggish economy. This week, the benchmark bond yield sank to a fresh record low, raising the need for intervention to put a floor under falling yields.
Authorities have been torn for months: While the economy is primed for lower borrowing costs to help boost demand, it may not be able to handle the wild market swings that the bursting of a liquidity-fueled bubble could create. Late last week, the central bank said it sold long-dated bonds and bought short-term notes in August, a sign it hopes to steepen the yield curve and damp speculation.
The bonds being sold on Thursday, coded as “2400101,” are among those that the PBOC bought last week from dealers. The central bank purchased all of such debt that the finance ministry sold to dealers at a private auction.
Yield on the most actively traded 10-year government bond erased losses to rise one basis point to 2.1340% in the afternoon.
Concerns over a slowing economy, expectations for interest-rate cuts and a lack of attractive investment alternatives have led investors to pile into Chinese government bonds this year. Officials have been seeking to limit the one-way buying, wary of the 2023 collapse of Silicon Valley Bank, which piled into US Treasuries before a market reversal.
After starting with just verbal warnings earlier this year, the PBOC’s pushback against the bond rally has evolved into action since early August. Debt sales by state banks to drive up yields and repeated regulatory checks on some investors have kept traders on edge and dampened trading activities.
--With assistance from Zheng Li.
©2024 Bloomberg L.P.
