(Bloomberg) -- China is looking into potentially illegal bond trading behavior by some financial firms, the latest sign that authorities are keen to cool speculation following a rally in the sovereign debt market. 

An entity backed by the People’s Bank of China is investigating six financial institutions on alleged violation of rules when holding bonds for others or lending their trading accounts, according to a Friday statement. Some employees have “colluded” with outsiders to take advantage of lower yields and transfer benefits, the National Association of Financial Market Institutional Investors said. 

While the statement fell short of naming any of the firms under probe, it underscores policymakers’ growing unease with potential bubbles brewing in the bond market. Amid an uncertain economic outlook, the country’s ten-year government yield has fallen 27 basis points this year to hover near a two-decade low. 

Beijing is wary of an overheated bond market preventing cash from being funneled into the economy. Officials started taking action in early March, when they stepped up scrutiny over regional banks’ bond investments and urged them to focus on supporting small firms. Bloomberg reported last week that rural lenders have received guidance to cap ultra-long bond holdings.

Earlier this month, the PBOC said it will monitor changes in long-term yields in its quarterly monetary policy committee meeting. On Friday, a central bank-backed paper said some market participants have turned more careful amid a potential surge in supply this quarter.

Chinese regulators forbid lending of bond investment accounts and trading on behalf of others, the result of enhanced curbs put in place since 2018. The changes followed a major incident in 2016, when misconduct by an employee for a small broker spurred a selloff in the debt market.

The National Association of Financial Market Institutional Investors, a self-regulatory body for the interbank bond market supervised by the PBOC, also urged market participants to ramp up internal compliance in its Friday statement.  

China’s 10-year government bond yield was little changed at 2.27% on Monday after the PBOC kept a key policy rate on hold and withdrew cash from the financial system for a second month. Futures on the 10-year notes rose 0.2% to a new record. 

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