PBOC suspends treasury purchases after yield declines

The People's Bank of China, the central bank, announced on Friday that it will suspend open market treasury bonds purchase operations starting this month, a move analysts said will help prevent government bond yields from excessive declines.

The PBOC said in a statement on Friday that the decision was based on persistent supply-demand imbalances in the government bond market. The central bank said it will resume purchases at an appropriate time depending on market conditions.

Feng Lin, executive director of research at Golden Credit Rating International, said that the suspension is expected to reduce demand for government bonds and the PBOC might also sell long-term bonds to balance supply and demand in the market.

This move, Feng said, is aimed at curbing the rapid decline in bond yields caused by speculative activity, and could help maintain stability in the renminbi exchange rate as well.

It might also hint at a higher likelihood of a reserve requirement ratio cut in the first quarter as the central bank seeks to maintain ample liquidity while addressing imbalances in the bond market, Feng said.

In August, the central bank started secondary-market treasury bond trading as a tool to provide liquidity and manage bond market yields, with a net purchase of 1 trillion yuan ($136.3 billion) for the whole year, data from the PBOC showed.