The central bank has made a move!

Wall Street Sights

2024-07-01 14:17Wall Street News Official Account

On Monday afternoon, the People's Bank of China issued an announcement saying that it decided to carry out treasury bond borrowing operations for some primary dealers in the open market in the near future.

Treasury futures plummeted lower after the decision was announced, with 30-year Treasury futures turning lower and now down 0.69%, after rising more than 0.3% at one point. The yield on the 30-year Treasury active 230023 is now up 0.65bp at 2.4300%, after falling 1.75bp.

Ming Ming, chief economist of CITIC Securities, said that the central bank's move means that it may carry out treasury bond sales in the open market this week. At a time when the yield on 10-year Treasury bonds has fallen to a record low, selling Treasury bonds is conducive to stabilizing long-term bond interest rates and guarding against interest rate risks.

The central bank's treasury bond borrowing operation refers to the treasury bond borrowing activities carried out by the People's Bank of China for some primary dealers in open market business. It is reported that the bond lending business can lend bonds that are temporarily illiquid to investors who need bonds, increasing the number of bonds available for trading and settlement in the market, improving the turnover rate of bonds, and helping to enhance the liquidity of the market.

China Post Fixed Income also previously pointed out that the central bank can borrow treasury bonds from banks and other institutions through outright repo, and then sell them.

The central bank can sell treasury bonds after the ownership of treasury bonds is transferred from the primary dealer to the central bank by carrying out outright reverse repo transactions. However, when selling through outright reverse repo loans, it is necessary to pay attention to the operation period and pricing issues in the selling process.

On the whole, historically, the central bank has sold very few treasury bonds, which is not the mainstream of bond trading operations in the open market, and the historical use of instruments has been mainly for the purpose of liquidity regulation, and there have been cases where the central bank has actively guided prices, but there are few cases.

Pan Gongsheng, governor of the People's Bank of China, said in mid-June that he was communicating with the Ministry of Finance to promote the implementation of increased treasury bond trading. This process as a whole is gradual, and the rhythm of treasury bond issuance, term structure, and custody system also need to be studied and optimized simultaneously. It should be noted that the inclusion of treasury bond trading in the monetary policy toolbox does not mean that quantitative easing is to be carried out, but rather that it is positioned as a channel for the delivery of base money and a liquidity management tool, which can be bought and sold, and is comprehensively matched with other tools to jointly create a suitable liquidity environment.

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