Chinese Regulators Ban Local Banks from Buying Amid Signs of Bond Market Overheating

As bond demand surged sharply within China recently, authorities have taken proactive measures, including banning local banks from purchasing bonds.

On the 12th (local time), Bloomberg News reported, citing anonymous sources, that Chinese regulatory authorities have prohibited local commercial banks from buying government bonds to prevent overheating in the Chinese bond market.

[Image source=Yonhap News]

After issuing guidelines on the 9th instructing several local banks in Jiangxi Province to halt bond purchases, multiple banks reportedly ceased trading. Bloomberg noted that this move aims to "prevent banks from taking on excessive bond risk," but also pointed out that "(such intervention) could undermine market functions."

China has recently seen a surge in demand due to economic pessimism, interest rate cuts, and sluggish asset markets such as stocks and real estate. The government has implemented various administrative measures to stabilize the market, and this latest action is interpreted as an effort to closely manage local banks, which are among the most aggressive buyers of government bonds.

According to sources, at least four Chinese securities firms began reducing government bond transactions last week, and one immediately complied with the authorities' directive to stop purchases, Bloomberg reported. Additionally, authorities requested some Chinese state-owned banks to record detailed information about government bond buyers, which Bloomberg assessed as an attempt to cool down demand.

The yield on China's 10-year government bonds, which was around 2.62% at the beginning of the year, has been declining this year and fell to the 2.08% range on the 5th. Concerned about excessive rate drops, the People's Bank of China intervened in the market, and as of the 12th, the bond yield rose to 2.24%, marking the highest level in three weeks. According to data from China's foreign exchange trade system, the trading volume of 10-year government bonds on the 9th was 77 billion yuan (approximately 14.7 trillion won), only 45% of the volume on the 6th.

This content was produced with the assistance of AI translation services.