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source: securities times

on august 28, the people's bank of china (hereinafter referred to as the central bank) launched the "open market treasury bond trading business announcement" column on the "open market business" special page of the official website. as of 10 p.m. that evening, the content of this column had not been updated.

the central bank updated the column on its official website this time, showing that the central bank is ready for the open market treasury bond trading business, once again sending a signal that it will conduct treasury bond trading operations in the open market. the "china monetary policy implementation report for the second quarter of 2024" recently released by the central bank also clearly pointed out that in the next stage, it is necessary to "enrich and improve the methods of basic currency injection and gradually increase treasury bond trading in the central bank's open market operations."

since the central financial work conference proposed "enriching the monetary policy toolbox", the central bank has continuously released signals that it will conduct treasury bond trading operations in the open market, and has taken actual actions in the past two months. with the signing of bond borrowing agreements between the central bank and several major financial institutions in july this year, the central bank can theoretically sell treasury bonds in the open market at any time.

the column "open market treasury bond trading business announcement" is launched

the central bank has added a new column "open market treasury bond trading announcement" to the "open market operations" special page, which not only sends a signal that the central bank will carry out treasury bond trading operations, but also clarifies its positioning as a base money injection channel and liquidity management tool. this year, the central bank has repeatedly emphasized that the treasury bond operations will be "two-way", with both buying and selling.

treasury bonds have the role of sovereign credit and interest rate benchmarks, and the treasury bond market occupies a core position in the financial market. experts and scholars generally believe that the central bank's trading of treasury bonds in the open market will not only help smooth out short-term liquidity fluctuations, enrich the base money supply and money supply regulation mechanism, but will also better play the role of treasury bond yield pricing benchmark.

from the perspective of interest rate marketization reform, the central bank can buy and sell treasury bonds in real time in the open market, accurately regulate interbank liquidity by increasing the scale and frequency of buying and selling within the day, and avoid disturbances caused by the large-scale maturity and renewal of tools such as re-loans.

from the perspective of guiding the treasury bond yield curve, the central bank can sell treasury bonds in the open market when necessary through methods such as "borrowing bonds to sell", thereby balancing the supply and demand in the bond market and correcting and blocking the accumulation of risks in the financial market.

in july this year, the central bank signed bond borrowing agreements with several major financial institutions. the financial institutions that have signed the agreement have hundreds of billions of yuan of medium- and long-term government bonds available for lending. the central bank also made it clear that it will borrow government bonds in an open-ended and credit-based manner, and will continue to borrow and sell government bonds depending on the operation of the bond market. experts and scholars believe that in theory, the central bank may sell government bonds on the open market at any time after borrowing them.

the imbalance between supply and demand in the bond market is expected to improve

since the beginning of this year, the yield of treasury bonds has continued to decline rapidly, with the 10-year treasury bond yield falling by more than 40 basis points, significantly deviating from the reasonable central level, and accumulating financial risks. in early august, after the regulatory authorities strictly investigated violations of treasury bond transactions, guided institutions to strengthen their awareness of interest rate risks, and explained in detail the truth and risks of consistent expectations of treasury bonds, the yield of treasury bonds gradually stabilized, but it is still at a low level. as of august 28, the yield to maturity of 10-year medium-term treasury bonds was 2.1673%.

"at present, the risk of 'stampede' caused by unilateral and consistent behavior cannot be ignored." zhang xu, chief fixed income analyst at everbright securities, pointed out that fortunately, since the beginning of april this year, the central bank has guided market expectations in various ways, and through "continuous small shocks to avoid big shocks", it has weakened the trend of rapid decline in yields and the accumulation of risks, and correspondingly reduced the probability of a sharp rise in yields in the future and causing a "stampede". obviously, this is also the original intention of the central bank to continuously remind of the risk of interest rate fluctuations and block unilateral market trends.

as the central bank is about to start treasury bond trading operations in the open market, coupled with the concentrated issuance of government bonds before the end of the year, some market experts believe that the imbalance between supply and demand in the bond market is expected to improve.

in addition, the central bank's participation in the purchase and sale of treasury bonds will also put forward higher requirements for the depth and price formation mechanism of the treasury bond market. previously, many experts and scholars interviewed pointed out to reporters that as the central bank participates in the purchase and sale of treasury bonds, coordinating the pace of treasury bond issuance and monetary policy operations will become a difficult point in the coordination of fiscal and monetary policies.

from the perspective of macroeconomic regulation, if the central bank increases the purchase and sale of treasury bonds in open market operations, the fiscal department also needs to determine the scale and timing of treasury bond issuance according to the trend of economic development and optimize the treasury bond issuance mechanism. dong ximiao, chief researcher of china unionpay, said in an interview with reporters that timely adjustment of the issuance rhythm of treasury bonds or special treasury bonds can further affect the base money supply, and thus have an impact on economic activities.