(Bloomberg) -- A gauge of leveraged activity in China’s money market has notched another record as onshore financial institutions take advantage of ample liquidity to boost borrowing.

Turnover of so-called overnight pledged repo trades surged to an all-time high 7.9 trillion yuan ($1.1 billion) on Tuesday, according to data from the China Foreign Exchange Trade System. An increase in volume may be indicative of banks using cheap funding costs to buy bonds, even if the transactions also include the day-to-day financing needs of firms in the market.

While officials discourage signs of leverage in the financial system, the data suggests some traders are betting the People’s Bank of China will opt to keep easy money conditions to support a still fragile-economy.

“As the economy loses steam, the market does not think there is a risk of tighter liquidity so traders dare to increase leverage,” said Zhang Wei, chief fixed income analyst at Founder Securities Co Ltd. “Repo turnover could continue to hit new highs because of insufficient demand in the real economy, liquidity staying in the interbank market and the market expecting more easing from the PBOC.” 

Speculation is growing that Beijing may have to deliver more stimulus to bolster growth. Some economists expect the central bank to cut the reserve requirement ratio for banks in coming months, while others argue an interest-rate cut may be necessary, possibly as early as next week. 

Bonds have rallied on the hope of broader easing measures. China’s 10-year yield has fallen over 20 basis points from a February high to 2.70%, near levels last seen in November. 

Money market conditions may tighten on seasonal demand, but the benchmark seven-day repo rates will likely remain below 2%, Zhang said. The gauge traded at around 1.8% on Wednesday.

Buying short-end government bonds is a good strategy and provides better liquidity for traders if authorities introduce stimulus measures for the real estate sector which may impact the long-end of the curve, he added.

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