China's Sovereign Bond Rally: What You Need to Know
As the global economy faces uncertainty, China's long-dated sovereign bonds have seen a surge in demand, driving yields to record lows. However, authorities are taking measures to cool down the market, causing some turbulence.
Authorities' Actions to Control the Market
1. Warnings: The People's Bank of China (PBOC) has issued warnings about market risks, especially when the 30-year treasury yield falls below 2.5%. Governor Pan Gongsheng emphasized the need to maintain a normal yield curve.
2. Selling: The central bank has increased bond trading activities and state banks have been selling off long-term treasuries.
3. Dampening Demand: Chinese regulators are restricting new bond funds and cutting collateral requirements for loans to banks.
4. Shake Down: Regulators have ordered brokerages to inspect bond trading activities, announced stress tests, and increased reporting requirements.
Market Impact
Despite authorities' efforts, bond prices remain high and yields near record lows. Investors believe the rally will continue as long as the economy struggles.