In September, the Chinese central bank purchased 200 billion yuan ($28.52 billion) of government bonds, causing a reversal in long-dated bond yields after hitting record lows. The move was part of efforts to stimulate the economy and maintain liquidity in the banking system.
The People's Bank of China aims to adjust monetary policy counter-cyclically, with a focus on keeping short-term yields low to boost economic growth and long-term yields high to encourage investment. Market participants anticipate a shift from bonds to equities as China implements aggressive stimulus measures, leading to record gains in the stock market.
The recent increase in bond yields suggests a steeper yield curve, signaling a potential shift towards purchasing long-term bonds by the PBOC. This marks a significant change from previous actions of buying short-dated bonds and selling long-dated bonds.
In summary, the Chinese central bank's bond purchases and policy measures have a direct impact on bond prices, stock market performance, and investor sentiment. It is essential for investors to stay informed about these developments to make informed decisions about their portfolios.