In China’s 10-year treasury bond market, the Ministry of Finance is taking steps to manage liquidity due to concerns that long-term yields have been too low. The ministry announced plans to sell up to 2.5 billion yuan worth of two types of 10-year treasury bonds to improve liquidity in the secondary government bond market and enhance the government bond yield curve.
China’s long-term treasury bond market has experienced a significant rally, resulting in record-low yields as investors seek safe-haven assets amidst weak economic confidence in the country. The benchmark yield on China’s 10-year treasury bonds reached 2.262 percent before moderating to around 2.251 percent following the ministry’s statement.
The People’s Bank of China (PBOC) has issued warnings about the risks of a potential bond bubble burst, which could disrupt financial markets and impede the nation’s economic recovery. Financial News, backed by the PBOC, stated that the scramble for government bonds by financial institutions could lead to expectations of further interest rate decreases in the future, potentially increasing capital outflow pressure.
The PBOC is committed to maintaining a normal upward-sloping yield curve and addressing bond market risks. The Ministry of Finance has been conducting monthly operations since 2017 to enhance liquidity in the secondary treasury bond market. While these operations target specific bonds’ supply and demand, they are not seen as influencing broader trends in the bond market.
In April, finance ministry officials expressed support for the PBOC to resume trading treasury bonds in open-market operations to better coordinate fiscal and monetary policies. Despite past disagreements, Chinese authorities are emphasizing the importance of enhancing coordination between fiscal and monetary policies to address the country’s economic challenges.