China's central bank will inject cash via outright reverse repos for the second time this month, it said on Friday, aiming to ease funding pressures during the peak season for bond financing.

The People's Bank of China said on Friday that it would inject 400 billion yuan (HK$437 billion) into its banking system via outright reverse repos on June 16. The tenor of the repos is six months.

The PBOC surprised the market by injecting 1 trillion yuan such repos in the 3-month tenor last week, as banks brace for a record 4 trillion yuan in interbank negotiable certificate of deposit (NCD) maturities this month.

China's central bank has been very carefully managing the liquidity conditions this year to aid the broad economy without replicating a relentless bond rally seen late last year in what policymakers feared could fuel asset bubbles and trigger financial instability.

This week, net government bond financing hit a seasonal peak of 410 billion yuan..

"The upcoming liquidity demands will likely require further injections by the PBOC," said Jenny Zeng, chief investment officer for fixed income Asia Pacific at Allianz Global Investors.

Zeng remained bullish on China's bond market and saw room for the 10-year government bond yield to decline toward 1 percent in 2026.

The 10-year bond yield last traded at 1.64 percent.

Traders said state-owned banks were observed buying short-term government bonds for several consecutive days last week. While it remains unclear whether the purchases were made for the banks' own needs, or in anticipation of potential bond buying by the PBOC, the activity has fuelled expectation of more cash support from the central bank.

The PBOC has not announced any buying or selling of Chinese government bonds in the secondary market this year.

Investors are closely watching next week's annual Lujiazui Forum for signals on monetary policy, with PBOC Governor Pan Gongsheng expected to attend.

REUTERS

China central bank plans second cash injection via outright reverse repos in June