China’s Bond Data Hint Central Bank Is Buying Government Debt

(Bloomberg) — The People’s Bank of China may have bought government bonds from domestic banks in July, a rare move that has analysts puzzling over the monetary authority’s policy intentions amid a record amount of government debt issuance.

Sovereign bonds held by “other” investors — a category that includes central banks and clearing houses — rose by 196.5 billion yuan to 1.78 trillion yuan ($256 billion) last month, according to data released by China Central Depository & Clearing Co. last week.

The increase is the biggest since Bloomberg data started in late 2018, prompting analysts from Citic Securities Co. to Nomura Holdings (NYSE:NMR) Inc and GF Securities Co. to speculate the central bank might have bought some government debt in the month. The PBOC didn’t immediately respond to queries about the data.

Policy makers have frequently said in the past they do not intend to enact the kind of bond-market purchases seen in developed markets and have restricted stimulus measures throughout the coronavirus crisis to moderate trimming of market interest rates and a more generous liquidity policy. But they have flagged a willingness to support the government’s fiscal policy.

Last week, the PBOC said in a policy report it’ll work with the Ministry of Finance to smooth government bond sales, without specifying the measures. Analysts have expected the institution will manage liquidity supply to help local banks absorb a record amount of special bond sales this year.

PBOC Shouldn’t Buy Government Bonds Directly, Adviser Says

“There’s a possibility that the central bank has bought sovereign bonds,” Ming Ming, head of fixed-income research at Citic Securities Co in Beijing, wrote in a note, though he cited the possibility of other factors being behind the rise. The move is more likely to be an effort to “directly finance the real economy” rather than quantitative easing, with the PBOC buying anti-virus bonds that invest in projects with a steady return, he said.

Some economists cautioned against such speculation. While secondary-market purchases are a possibility, more data is needed to verify the idea, especially the central bank’s July balance sheet data, according to Nomura International’s chief China economist Lu Ting. The PBOC is expected to release those figures on Friday, according to a calendar on the bank’s website.

Xing Zhaopeng, an economist at Australia and New Zealand Banking Group Ltd in Shanghai, said he believes the bonds were bought by foreign central banks via their currency swap agreements with the PBOC.

Researchers affiliated with China’s Ministry of Finance had previously suggested the central bank should buy some government debt this year, a step which could help reduce the impact on markets as the government plans a record amount of sales to mitigate growth risks. The PBOC is forbidden by the nation’s central bank law from purchasing government debt in the primary market.


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