Market Expectations Warm Up for Central Bank to Restart Treasury Bond Trading Operations
Recently, significant fluctuations in the bond market have attracted widespread attention. Among them, the closely watched 10-year Treasury bond yield has risen back above 1.8%. At the same time, market expectations for the People's Bank of China (PBOC) to restart Treasury bond trading operations have warmed up again.
Earlier this year, the supply-demand imbalance in the Treasury bond market intensified, and the 10-year Treasury bond yield once fell below the historical low of 1.6%. The central bank issued an announcement stating that it would temporarily suspend the purchase of Treasury bonds in the open market, indicating that from January 2025, it would suspend open-market Treasury bond purchase operations and would resume them at an appropriate time based on the supply and demand conditions of the Treasury bond market.
Lian Ping believes that the central bank's Treasury bond trading operations are of great significance to financial market stability and macroeconomic regulation. This tool not only has the attributes of a quantitative monetary policy tool for adjusting market liquidity but also possesses the attributes of a price-based tool for directly guiding changes in Treasury bond yields and regulating market interest rates. Currently, the suspension of Treasury bond trading operations is only temporary. If there is a need to supplement liquidity, regulate the bond market and yields, or adjust Treasury bond supply in the future, the central bank is highly likely to use this tool again. At present, open-market Treasury bond trading is becoming one of China's aggregate monetary policy tools and will play an increasingly important and active role in future macroeconomic regulation.
According to a message released by the Ministry of Finance on September 3, to promote the implementation of more proactive and impactful macroeconomic policies and strengthen the coordination between fiscal and monetary policies, the joint working group of the Ministry of Finance and the People's Bank of China held its second head meeting. The meeting fully affirmed the achievements made through the collaboration between the Ministry and the central bank since the establishment of the joint working group last year. It also conducted in-depth discussions on topics such as financial market operations, government bond issuance management, the central bank's Treasury bond trading operations, and improving the issuance mechanism of offshore RMB Treasury bonds. Meanwhile, the meeting stated that the next step would be to continue actively leveraging the mechanism of the joint working group between the Ministry and the central bank, deepening cooperation, enhancing coordination, and continuously promoting the stable and healthy development of China's bond market, thereby jointly ensuring the effective implementation of fiscal and monetary policies.
