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the central bank's treasury bond trading operation, which has attracted much attention from the market, has officially been implemented.

on august 30, the central bank disclosed the latest news in a new column on its official website, "announcement on open market treasury bond trading business", stating that in august this year, the central bank conducted open market treasury bond trading operations, buying short-term treasury bonds and selling long-term treasury bonds from some primary dealers of open market operations, with a net purchase of bonds with a face value of 100 billion yuan for the whole month.

wang hongfei, the manager of the bond market public account "hongfei lunzang", analyzed to the reporter of "huaxia times" that the central bank's "buying short and selling long" shows that the central bank intends to raise long-term bond yields, maintain a normal yield curve that tilts upward, and change the current unilateral downward trend of long-term bond yields.

he said that although the central bank "net bought 100 billion yuan" in august, which constituted the base money supply, it cannot be interpreted blindly and optimistically as a one-sided signal of monetary easing released by the central bank. overall, the liquidity gap this month is relatively large, and the amount of funds released by the central bank is still relatively small.

after the central bank’s announcement, medium- and long-term bond yields declined, with the interest rate of active 10-year treasury bonds falling slightly and most of the other varieties falling. the 5-year treasury bond led the market with a decline of 2.75bp.

the central bank's open market purchase and sale of government bonds has been implemented

the reporter noticed that the central bank adopted a two-way operation in the open market treasury bond trading operations this time - buying short-term treasury bonds and selling long-term treasury bonds.

in this regard, industry insiders believe that this move will help maintain an upward-sloping yield curve and keep the term spread of government bonds at a normal level.

china everbright bankzhou maohua, a researcher at the financial markets department, said that the central bank "distorts" the bond market through bond buying and selling operations, affects the supply and demand of the short-term bond market, stabilizes market expectations, and prevents irrational unilateral volatility risks in the bond market. at the same time, it maintains a normally tilted interest rate curve to promote the reasonable pricing of financial assets and the effective allocation of resources.

in addition, the central bank's launch of treasury bond buying and selling operations also marks the official entry of new monetary policy tools.

"the implementation of the purchase and sale of treasury bonds has effectively expanded the monetary policy toolbox. this is a manifestation of the implementation of the requirements of the financial work conference. it is also conducive to continuously strengthening the coordination of monetary and fiscal policies, thereby stabilizing the operation of the financial market and supporting the growth of the real economy."citic securitieschief economist mingming believes that the central bank's purchase of short-term government bonds and sale of long-term government bonds is conducive to maintaining an upward-sloping yield curve, stabilizing the operation of financial markets and preventing financial risks. in addition, the central bank's net purchase of 100 billion yuan of government bonds in august is equivalent to a net injection of liquidity, which will effectively support the financing needs of the real economy.

considering the central bank's transactions with the open market, some market analysts believe that this directly involves the turnover of base money. "from the results, the central bank has net injected 100 billion yuan of base money into the market, which may also become an important way for the central bank to inject base money into the market in the future."

market "expected"

since the central financial work conference proposed to "enrich the monetary policy toolbox", the central bank has continuously released signals that it will carry out treasury bond buying and selling operations in the open market.

in july this year, the central bank signed bond borrowing agreements with several major financial institutions. the financial institutions that have signed the agreements 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, credit-based manner, and will continue to borrow and sell government bonds depending on the operation of the bond market. industry analysts believe that this means that the central bank can theoretically sell government bonds in the open market at any time.

why does the central bank buy and sell government bonds in open market operations?

"a very important point is that this is the most standard modern central bank operation in the world - everyone has a certain consensus on this point, that is, the central bank affects short-term interest rates by buying and selling treasury bonds in open market operations, and then affects long-term interest rates through short-term interest rates." lu ting, chief economist of nomura securities china, said that from a legal perspective, the people's bank law stipulates that the central bank cannot buy and sell treasury bonds directly in the primary market, but does not stipulate that it cannot buy and sell treasury bonds in the secondary market.

"from the perspective of implementing monetary policy, it is very necessary for the central bank to buy and sell treasury bonds in the secondary market." lu ting said that moderate purchase of treasury bonds will help further improve china's risk-free yield curve and promote interest rate marketization reform, thereby further enhancing the central bank's monetary policy operation capabilities and level.

since the beginning of this year, treasury bond yields have continued to decline rapidly, and the long-term bond market has been particularly hot.

on august 5, the yield of the most active 10-year treasury bond "24 interest-bearing treasury bond 04" fell below 2.10% during the trading session, hitting a new low for the bond. the yield of the most active 30-year treasury bond "23 interest-bearing treasury bond 23" fell below 2.30% during the trading session, hitting a new low since the end of february 2005.

the rapid decline in long-term interest rates has aroused the regulators' attention to financial risks. since august 6, major banks have stepped up their bond sales, the securities and futures association has investigated the violations of small and medium-sized financial institutions, and some public offering institutions have received window guidance. the regulatory authorities have stepped up their control over the bond market, the bullish sentiment in the bond market has been suppressed, and the price fluctuations of ultra-long bonds have expanded.

on august 8, the central bank released its second quarter monetary policy report, which included a large amount of information on long-term risks and non-bank risks, further triggering an overall upward trend in bond market interest rates, with medium and short-term bonds leading the decline. in the report, the central bank also clearly pointed out that in the next stage, it is necessary to "enrich and improve the methods of basic currency issuance and gradually increase the purchase and sale of treasury bonds in the central bank's open market operations."

on the evening of august 28, the central bank’s official website launched the “open market operations” special page with the column “open market treasury bond trading operation announcement”. the market believes that this move is another signal from the central bank that it will conduct treasury bond trading operations in the open market.

at the end of trading on august 29, the central bank announced that it had conducted a buyout transaction of open market business bonds by way of quantity bidding, and purchased 400 billion yuan of special treasury bonds from primary dealers of open market business, of which 300 billion yuan was purchased for the 10-year "24 special treasury bond 01" and 100 billion yuan for the 15-year "24 special treasury bond 02".guolian securitiesin an interview with a reporter from the china times, li qinghe, chief fixed income official, pointed out that these two special treasury bonds were re-issuances of the special treasury bonds issued in 2017. at that time, they were also issued to the agricultural bank of china in a targeted manner and then purchased by the central bank. now the same targeted issuance method is adopted, mainly to avoid short-term liquidity pressure on the market, and also to reserve positions for subsequent treasury bond transactions.

looking ahead to the future market, wang hongfei believes that the central bank's treasury bond buying and selling operations at this stage are generally bearish for the bond market.

"the current bond yields are obviously too low. the central bank pointed out in its second quarter monetary policy implementation report that the 10-year treasury bond yield is below 2.2%, which is obviously too low. in addition, the current 5-year treasury bond yield is significantly lower than the 1-year interbank deposit certificate interest rate issued by large state-owned banks and joint-stock banks, forming an inverted yield curve, reflecting that bonds have incorporated too many expectations of interest rate cuts and are also facing adjustment risks." wang hongfei said that as the central bank conducts treasury bond buying and selling operations on a regular basis, the central bank's control over the bond market has become increasingly stronger, and the probability of a unilateral decline in the bond market has decreased. once the economy recovers, the funding side converges marginally, or government bonds are supplied in a concentrated manner, the bond market may face adjustments.