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the central bank suddenly took action!

just now, the rmb exchange rate suddenly soared, and the offshore rmb against the us dollar once broke through 7.09. as of press time, it rose by more than 400 points in the day. on the news front, on august 29, the people's bank of china conducted a buyout transaction of open market business spot bonds by quantitative bidding, and bought 400 billion yuan of special treasury bonds from primary dealers in open market business.

as for the reasons for the continued strengthening of the rmb, analysts said that it was mainly affected by multiple factors at home and abroad. domestically, the rmb exchange rate was mainly affected by the resonance of domestic fundamentals, the continued weakening of the us dollar, and the increased attractiveness of rmb assets; internationally, the expectation of a rate cut by the federal reserve boosted the rmb exchange rate to a certain extent.

it is worth noting that yesterday, the "open market treasury bond trading business announcement" column was launched on the "open market business" special page of the central bank's official website. the "china monetary policy implementation report for the second quarter of 2024" recently released by the central bank also 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."

rmb surges

on the afternoon of august 29, the rmb exchange rate suddenly soared, with the offshore rmb breaking through 7.09 against the u.s. dollar. as of press time, it had risen by more than 400 points on the day to 7.0915, the highest level since august 5. the onshore rmb exchange rate once broke through the 7.1 mark, rising by more than 340 points on the day to 7.0917 as of press time.

on the news front, the people's bank of china announced that on august 29, 2024, the people's bank of china conducted an open market business spot bond buyout transaction through quantity bidding, purchasing 400 billion yuan of special treasury bonds from primary dealers in open market operations, of which 300 billion yuan was purchased for "24 continued special treasury bonds 01" and 100 billion yuan was purchased for "24 continued special treasury bonds 02".

in fact, before the central bank conducted an open market bond buyback transaction on august 29, the ministry of finance had already "forewarned" it in the "notice on matters related to the issuance of special government bonds (phase i and phase ii) due in 2024" (hereinafter referred to as the "notice").

the "notice" clearly states that the ministry of finance plans to issue special government bonds (phase i) and (phase ii) due in 2024 on august 29. the first phase will have a face value of 300 billion yuan, and the second phase will have a face value of 100 billion yuan.

in terms of issuance method, the "notice" proposes that targeted issuance will be made to relevant domestic banks in the national interbank bond market, and "the people's bank of china will conduct open market operations for relevant banks."

a relevant official from the ministry of finance emphasized that the renewal of the special government bonds due in 2024 is an equal rolling issuance of the original special government bonds, which still corresponds to the original assets and liabilities and will not increase the fiscal deficit.

the relevant person in charge of the central bank also explained that the ministry of finance issued special treasury bonds to relevant banks in the primary market, and the central bank purchased special treasury bonds in the secondary market on the same day, which would not have a crowding-out effect on the issuance of bonds in the primary market and trading in the secondary market. in summary, the total amount of fiscal debt, the balance sheet of the people's bank of china, the balance sheets of relevant financial institutions, and the liquidity of the banking system can be kept unchanged.

as for the reasons for the continued strengthening of the rmb, analysts said that it was mainly affected by multiple factors at home and abroad. domestically, the rmb exchange rate was mainly affected by the resonance of domestic fundamentals, the continued weakening of the us dollar, and the increased attractiveness of rmb assets; internationally, the expectation of a rate cut by the federal reserve boosted the rmb exchange rate to a certain extent.

li liuyang, managing director of cicc's research department and chief foreign exchange analyst, pointed out that the rmb exchange rate is expected to maintain a high degree of flexibility in the future, and the overall trend may tend to fluctuate, but the rmb exchange rate will continue to remain basically stable at a reasonable equilibrium level.

xiong aizong, a senior researcher at the institute of world economics and politics, said that in the event of rmb appreciation, the people's bank of china and other organizations will take measures to prevent large fluctuations in the value of the rmb.

central bank moves

it is worth noting that yesterday, the "open market treasury bond trading business announcement" column was launched on the "open market business" special page of the central bank's official website.

traders said that due to this influence, the bond market sentiment weakened today, and treasury futures closed down across the board. the main 30-year contract fell 0.04%, the main 10-year contract fell 0.04%, the main 5-year contract fell 0.05%, and the main 2-year contract fell 0.03%.

the "china monetary policy implementation report for the second quarter of 2024" recently released by the central bank pointed out that in the next stage, it is necessary to "enrich and improve the methods of issuing basic currency, and gradually increase the buying and selling of treasury bonds in the central bank's open market operations."

the size of my country's treasury bond market has ranked third in the world, and liquidity has significantly improved, which has provided the possibility for the central bank to carry out treasury bond trading operations in the secondary market.

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 believe that the central bank's open market trading of treasury bonds will not only help smooth 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.

other analysts said that 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.

since the beginning of this year, treasury bond yields have continued to decline rapidly. china's 10-year treasury bond yield once hit a 20-year low. as of press time, china's 10-year treasury bond yield was 2.172%, still at a low level.

based on the opinions of many experts, the central bank’s recent statements on the buying and selling of treasury bonds and long-term treasury bond yields are aimed at guiding long-term treasury bond yields back to a reasonable range and reminding investors of the investment risks they may face.

zhang xu, chief fixed income analyst at everbright securities, pointed out that at present, the risk of "stampede" caused by unilateral and consistent behavior cannot be ignored. 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, which has correspondingly reduced the probability of a sharp rise in yields in the future and causing a "stampede".

zhang xu said that the central bank's purchase and sale of treasury bonds in the open market is positioned as a liquidity adjustment tool, which is mainly used to absorb and release base currency, maintain a reasonable level of liquidity in the banking system, and achieve the intermediate goals of monetary policy.

as the central bank conducts treasury bond buying and selling operations in the open market, coupled with the concentrated issuance of government bonds before the end of the year, analysts believe that the imbalance between supply and demand in the bond market is expected to improve.

mingming, chief economist of citic securities, believes that the two-way treasury bond buying and selling operations are the difference between the people's bank of china's treasury bond buying and selling and the qe operations of some developed economies. the liquidity management with both tightening and tightening is more in line with hedging the disturbance to liquidity caused by the peak of government bond issuance. for the subsequent central bank's treasury bond buying and selling operations, both selling and buying may be the subsequent norm.

analysts suggest that investors should be rational about medium- and long-term treasury bond investments and returns based on reasonable expectations of economic fundamentals, and should not make unilateral bets. institutional investors, especially small and medium-sized banks, should control bond investments within a certain proportion. individual investors should fully understand the characteristics of medium- and long-term treasury bonds, attach great importance to interest rate risks, and make appropriate allocations based on their own assets, liabilities, risk preferences, etc.