PBC: Bond buying suspension meant to address market risks

At a press conference on Tuesday, a spokesperson for the People's Bank of China (PBC) explained the central bank's recent decision to temporarily suspend treasury bond purchases in the open market, citing efforts to manage market risks and maintain stability.

On Jan. 14, 2025, the State Council Information Office holds a press conference in Beijing on financial support for high-quality economic development. [Photo by Liu Jian/China SCIO]

Zou Lan, also director general of the Monetary Policy Department of the PBC, acknowledged that while government bonds are regarded as safe assets, they are not immune to price volatility in the secondary market.

He pointed to losses faced by investors during past yield fluctuations, including those in late 2022 and similar instances globally, such as the 2023 Silicon Valley Bank collapse. "If the yield on a 30-year government bond rises by 30 basis points, prices could drop by over 5%. Moreover, there could be amplified losses for leveraged investors and trigger sell-offs," he said.

In light of these risks, the PBC has strengthened macro-prudential management, temporarily halting secondary market purchases during low issuance periods. Zou explained that this approach seeks to prevent supply-demand imbalances, mitigate market fluctuations, and ensure the bond market's long-term stability.

"The PBC respects market dynamics and the independent decisions of risk-bearing participants, while closely monitoring the information reflected in government bond yields," Zou said.

He noted that China's bond market, still relatively young with limited instances of major fluctuations, requires careful oversight to protect less experienced investors from hidden risks.

In addition, Zou said government bond yields are shaped both by economic growth expectations and supply-demand dynamics. As China's economy rebounds and is on track to achieve its 5% growth target for 2024, and with more proactive and effective macro policies in place, these positive developments will eventually be reflected in bond yields, he said.