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coincidentally, on august 29,the rmb exchange rate suddenly soared, rising by nearly 300 basis points, reaching a new high for the year.

what exactly happened?

——the central bank is about to launch the first regular trading of treasury bonds in the secondary market in history.

the industry believes that the central bank’s move will not only affect the rmb exchange rate, but also the bond market, stock market and property market.

//central bank seeks change//

on august 29, the central bank announced that it had conducted an open market business cash bond buyout transaction through quantity bidding, purchasing 400 billion yuan of special government bonds from primary dealers in the open market business.

through the spot bond buyout operation, the central bank purchased the special treasury bonds due in 2024 that were rolled out by the ministry of finance on the same day in the open market. on the same day, it purchased 300 billion yuan of the 10-year "24 special treasury bonds 01" and 100 billion yuan of the 15-year "24 special treasury bonds 02".

spot trading is one of the central bank's open market operations, but it is not a routine operation.

the relevant person in charge of the central bank once answered the question about the central bank buying out special government bonds with cash bonds,the ministry of finance issues special treasury bonds to relevant banks in the primary market, and the central bank purchases the special treasury bonds in the secondary market on the same day, which will not create a crowding-out effect on primary market issuance and secondary market transactions of bonds.in summary, the total 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 all remain unchanged.

it is worth noting thaton august 29, 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.

this column has not been updated yethowever, in the market's view,this move shows that the central bank is ready for open market treasury bond trading operations, and once again sends a signal that it will conduct treasury bond trading operations in the open market.

zhang jieqiang, a researcher at huatai securities' fixed income team, analyzed that if the central bank buys and sells government bonds in the secondary market, it may have three purposes:

first, fiscal and monetary coordinationin the next few years, special government bonds worth trillions of yuan may be issued, and the scale of government debt issuance will continue to expand. it is urgent to coordinate fiscal and monetary policies more closely. the central bank's purchase and sale of government bonds can be used as a supporting measure to prepare for emergencies.

second, it is positioned as a channel for the release of base money and a liquidity management toolthe central bank has been releasing base money through omo, mlf, and re-lending, all of which have their own limitations. as the bond market grows in size and depth, the conditions for releasing base money through buying and selling government bonds are ripe.

third, in situations such as market overshoot, it plays a role in correcting market deviations and maintaining market stability.the central bank's purchase and sale of government bonds can become a correction mechanism, which may more directly affect market supply and demand and stabilize the market than injecting liquidity.

// the central bank made a big move, and the rmb surged //

wind market data shows that on august 29, the rmb rose by nearly 300 basis points, and the usd/cny offshore and usd/cny onshore rates both broke through the 7.1 integer mark.

judging from the recent trend, since late july, the rmb exchange rate has experienced multiple rounds of pulsed increases, from around 7.27 to around 7.14. during the same period, the us dollar index continued to weaken.

(photo from wind financial terminal)

market insiders pointed out thatif the central bank buys and sells government bonds on a regular basis in the secondary market, it can affect the rmb exchange rate by influencing the supply of base money, market interest rates and monetary policy flexibility.。

the industry believes that the central bank's normalized buying and selling of treasury bonds in the secondary market has an impact on the rmb exchange rate mainly in the following aspects.

increase the base money supply method:

by buying and selling government bonds, the central bank can increase the supply of base currency, thereby affecting the money supply and, in turn, the exchange rate.

impact on market interest rates:

the central bank's purchase and sale of government bonds will affect market interest rates, which in turn will affect cross-border capital flows and exchange rates.

improving monetary policy flexibility:

by buying and selling government bonds, the central bank can adjust monetary policy more flexibly to respond to external shocks and maintain exchange rate stability.

from the beginning of july to the end of august, the central parity rate of the us dollar against the rmb fell from 7.1316 yuan to 7.1299 yuan, indicating that the rmb has appreciated against the us dollar. at the same time, the 12-month non-deliverable forward (ndf) exchange rate of the us dollar against the rmb fell from around 7.27 to around 6.9, also reflecting the market's expectation of future appreciation of the rmb.

(photo from wind financial terminal)

combining wind data and related information, we can see that the fluctuation of the rmb exchange rate is mainly affected by the following factors:

the us economic data fell short of expectations, market concerns about the us economy increased, and expectations for a fed rate cut were further brought forward, leading to a weakening of the us dollar.

u.s. stocks plummeted. u.s. stocks account for more than 25% of u.s. residents' assets. a sharp drop in u.s. stocks usually means damage to the balance sheets of u.s. residents, further strengthening the market's expectations for the federal reserve to cut interest rates this year.

china's foreign trade continued to grow rapidly, driving a 48% month-on-month increase in net cross-border capital inflows under goods trade. foreign capital increased its net holdings of domestic bonds by us$20 billion, and overseas investors remained highly motivated to allocate rmb assets.

the rmb remains the world's fourth most active currency in the global payment currency rankings, accounting for 4.74%. compared with june 2024, the overall rmb payment amount increased by 13.37%.

// how does it affect the property market, stock market, and bond market? //

if the central bank normalizes the buying and selling of government bonds in the secondary market, what impact will it have on the stock market, bond market and property market?

market participants believe that the central bank's regular purchase and sale of treasury bonds in the secondary market will have a certain impact on the stock market, bond market and property market. the size and direction of this impact depends on factors such as the scale and frequency of the central bank's purchase and sale of treasury bonds and market expectations.

impact on bond market:

the central bank can influence the trend of long-term interest rates by buying and selling government bonds. when the central bank buys government bonds, it will increase the market demand for government bonds, thereby lowering long-term interest rates; conversely, when the central bank sells government bonds, it will increase the market supply of government bonds, thereby raising long-term interest rates.this operation can prevent long-term interest rates from deviating excessively from reasonable levels and help stabilize expectations in the bond market.

see the chart below for the trend of 10-year treasury bond yields over the past year.

(photo from wind financial terminal)

stock market impact:

changes in long-term interest rates will affect the valuation of the stock market. when long-term interest rates fall, the financing costs of enterprises will decrease, which is conducive to corporate investment and economic growth, thereby increasing the valuation of the stock market; conversely, when long-term interest rates rise, the financing costs of enterprises will increase, which may inhibit corporate investment and economic growth, thereby reducing the valuation of the stock market. therefore, the central bank's purchase and sale of treasury bonds may have a certain impact on the stock market.

impact on the property market:

the relationship between the real estate market, bond market and stock market is rather complicated.on the one hand, the decline in long-term interest rates may reduce mortgage rates, thereby stimulating purchasing demand in the real estate market; on the other hand, the rise in the stock market may increase the wealth effect of investors, which is also conducive to purchasing demand in the real estate market.however, if the rise in long-term interest rates leads to an increase in corporate financing costs, it may affect corporate profitability and, in turn, affect investment demand in the property market.