Media reports have indicated that financial institutions snapping up Chinese government bonds are essentially tripping up the country’s economy.
Institutions Grabbing Government Bonds Are Hobbling Chinese Economy
According to Reuters information, a report to this effect appeared in Financial News, a publication known to be supported by the People’s Bank of China (PBOC), China’s monetary policymaker. This comes after the PBOC raised the alarm and took steps to sell treasury bonds in an attempt to stymie the ongoing rally.
On Friday 12 July 2024, the newspaper reported that the central bank is digging in its heels to sustain a healthy upward yield curve and mitigate the prevailing bond-market challenges. Based on Reuters information, the PBOC stated earlier in July that it has “hundreds of billions of yuan worth of bonds to borrow, and will sell them depending on market conditions”.
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Analysts believe that this emphasises the PBOC’s mission to steady the exchange rate and Chinese economy. Financial News quoted anonymous experts, who commented:
Financial institutions frantically snapping up government bonds equals to expecting that interest rates will get lower and lower in the future. They are basically shorting China’s yuan and the Chinese economy, increasing the pressure for capital outflows.
Last week, on Wednesday 10 July 2024, the PBOC also struck a deal with the National Bank of Kazakhstan to jointly work on research for central bank digital currencies. These two government institutions will “share knowledge and expertise” to develop and train employees in this field, according to Central Banking.
