Agencies
China's central bank said it bought special government bonds from primary dealers yesterday, its first such bond purchase in nearly two years and stirring speculation it is preparing to intervene in the domestic debt market.
The People's Bank of China bought 400 billion yuan (HK$439.5 billion) worth 10-year and 15-year bonds in open market operations, it announced on its website.
The PBOC last bought special treasuries from primary dealers in December 2022. The central bank has been warning market participants for weeks about the inflated prices of bonds, which have driven yields to record lows, as banks and investors seek safe assets in a flailing economy.
It said in July it has hundreds of billions of yuan worth of bonds at its disposal to borrow, and will sell them depending on market conditions.
This came as the onshore yuan erased its year-to-date losses amid bets capital will flow back to the country as the US dollar weakens.
The currency rose as much as 0.5 percent to 7.0905 per US dollar yesterday, a level unseen since December. With the US Federal Reserve expected to start cutting interest rates next month, some investors see Chinese corporates repatriating their foreign-exchange holdings to the domestic market, bolstering the yuan.
"There is the potential for more near-term appreciation if we start to see herd behavior among exporters emerge," said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group. "That 7.10 level is a key one as a clear break really opens up a large gap all the way toward 7.00."
Meanwhile, UBS has become the latest bank to cut its forecast for China's economic growth this year to 4.6 percent on deeper property downturn and weaker consumer spending - compared with an earlier forecast of 4.9 percent.
