SHANGHAI, Aug 13 (Reuters): China's long-dated sovereign bonds have surged as investors seek safety from a slowing economy and volatile stock markets.
The rally has pushed yields to record lows, however, and authorities have grown uncomfortable and are starting to push back.
Below are some of the measures the authorities have taken so far with the aim of cooling the market:
The People's Bank of China (PBOC) has warned of market risks since March, especially whenever the 30-year treasury yield fell below 2.5 per cent. Yields fall when bond prices rise.
Governor Pan Gongsheng said in June that China must address the issues that led to the collapse of US lender Silicon Valley Bank, which was forced to take large losses on its bond portfolio when short-term rates rose and depositors wanted cash.
He added that the central bank will work on maintaining a normal upward-sloping yield curve, where long-term rates are above short-term rates.
The central bank has said that bond trading will be part of its policy programme, and in August it flagged an increase in buying and selling in the open market.
It remains unclear whether the PBOC sold bonds directly, but state banks were heavy sellers of 10-year and 30-year treasuries after yields dropped to record lows early in August, according to traders and data.
Chinese regulators have moved to restrict the duration of new bond funds, in an apparent attempt to curb investment in long-dated treasuries. Fund approval has slowed down, with no new funds being approved over nearly two months to Aug. 13.
In July, the PBOC also cut the collateral requirement for medium-term lending facility (MLF) loans to banks, permitting banks to hold fewer longer-term bonds.
