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SHANGHAI (Reuters) – China’s lengthy-dated sovereign bonds have surged as investors gaze safety from a slowing economy and volatile stock markets.
The rally has pushed yields to file lows, nonetheless, and authorities have grown uncomfortable and are starting to push back.
Below are a few of the measures the authorities have taken so far with the aim of cooling the market:
WARNINGS
The Folk’s Bank of China (PBOC) has warned of market risks since March, especially whenever the 30-year treasury yield fell beneath 2.5%. Yields fall when bond costs rise.
Governor Pan Gongsheng said in June that China need to address the issues that led to the collapse of U.S. lender Silicon Valley Bank, which was pressured to take large losses on its bond portfolio when temporary rates rose and depositors wanted cash.
He added that the central bank will work on maintaining a normal upward-sloping yield curve, the place lengthy-term rates are above temporary rates.
SELLING
The central bank has said that bond trading will be part of its policy programme, and in August it flagged an increase in purchasing and selling in the start market.
It remains unclear whether or no longer the PBOC sold bonds immediately, but state banks had been heavy sellers of 10-year and 30-year treasuries after yields dropped to file lows early in August, according to traders and data.
DAMPEN DEMAND
Chinese language regulators have moved to prohibit the duration of latest bond funds, in an apparent attempt to curb funding in lengthy-dated treasuries. Fund approval has slowed down, without a unusual funds being approved over nearly two months to Aug. 13.
In July, the PBOC also cut the collateral requirement for medium-term lending facility (MLF) loans to banks, allowing banks to shield fewer longer-term bonds.
SHAKEDOWN
China’s securities regulator in August ordered some brokerages to stare their bond trading activities and the PBOC has announced stress exams and increased reporting requirements for establishments’ bond books.
Also in August, a central bank-affiliated newspaper carried warnings that trading accounts need to no longer be borrowed or transferred and regulators announced a probe into the market activity of some regional banks.
The PBOC had surveyed some regional banks on their bond investments in July and March.
EFFECT
Yields have jumped whenever authorities have hinted at market intervention or selling, nonetheless they remain near file lows and investors deem it is going to be hard to derail the bond designate rally while the economy remains in the doldrums.
