Trading surge in PBOC-owned China bonds a sign of intervention, sources say

TRADERS are seeing a surge in trading of some Chinese special government bonds mostly owned by the People’s Bank of China (PBOC).

Sources said this is a sign that the authorities may have become more active in selling their debt holdings to cool a rally.

More than 250 batches of the 10-year special sovereign notes changed hands by Tuesday (Sep 10) afternoon.

Traders said this is more than triple the number of deals in the previous session, and eight times the sum recorded for last Friday.

The offering mostly came from big state lenders, three of them added. They asked not to be identified as the matter was private. 

Last month, Beijing’s pushback against a bond rally grew from verbal warnings to direct intervention, leaving China’s rates traders on tenterhooks.

Still, investors this week sent government yields to fresh record lows as a combination of the nation’s economic malaise, sinking equities and slumping property prices continued to damage risk appetite. 

“It is possible that the jump in trading volume is due to PBOC selling,” said Michelle Lam, Greater China economist at Societe Generale.

“The goal is to prevent Chinese government bond yield from falling too quickly as there is some renewed downward pressure on yields after some disappointing macro data.”

Last Thursday, the special bonds coded as “2400101” – which the PBOC just bought from primary dealers in late August – were seen offered in the secondary market.

That raises bets the central bank was offloading the notes to put a floor under sinking yields.

The Shanghai Securities News on Monday said debt selling by the PBOC will likely continue, and the authorities will want to stem the bond rally. In late August, the central bank said it sold long-dated government bonds and bought short-end ones that month.

Expectations for monetary easing and a lack of attractive investment alternatives have also contributed to gains in 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.

China is scheduled to release the total transaction volume later. On Monday, the turnover was 2.2 billion yuan (S$403.6 million), official data showed.

“Intervention is getting more regular and the PBOC has the ammunition to control yield levels ultimately,” said Lam. BLOOMBERG