China’s central bank added a substantial amount of cash into the financial system on Tuesday, in a move that’s seen stabilizing bonds that have come under pressure from investors migrating into equities.
The People’s Bank of China added a net 465.7 billion yuan of short-term cash via reverse repurchase agreements, the largest daily net injection since July 25 and also the third biggest this year. Yields on the benchmark 10-year bond steadied after touching the highest level since April.
Bonds have been battered in recent sessions as optimism over US-China trade talks and Beijing’s measures to quell deflation fan a rally in local shares. Signs that the central bank will hold back from aggressively easing monetary policy and a tax on interest income on new bonds are also denting the demand for debt.
The latest cash injection indicates the PBOC’s desire to keep funding conditions ample for monthly tax payments and avoid any spikes in yields in a bid to support the weak economy. A further selloff in bonds also risks triggering redemptions and jeopardizing the government’s borrowing plans.
The PBOC has an incentive to maintain low money-market rates by keeping up the injections and to facilitate the upcoming bond supply, said Stephen Chiu, chief Asia FX & rates strategist at Bloomberg Intelligence. “The government bond yield curve has room to further steepen as a result.”
Liquidity conditions in China’s banking system improved after the large cash injection by the PBOC, according to traders. However, the cost of funds still remains high, with the overnight repo rate for non-bank institutions still around 1.57%, said the traders who asked not to be named because they are not allowed to speak publicly.
China’s 10-year government bond held little changed at 1.77%. The overnight repo rate edged up one basis point to 1.45% while the seven-day rate held steady at 1.52%.
With assistance from Jing Zhao.
This article was generated from an automated news agency feed without modifications to text.
