China’s central bank might be buying Chinese government bond, a high yield market in a low yield world

14 Aug, 2020 03:23
source: Singularity Financial

Singularity Financial Hong Kong August 14, 2020 – A mysterious increase in Chinese government bond (CGB) holdings by unknown investors has prompted speculation that China’s central bank has bought the debt in recent months to bolster the country’s economic recovery.

The value of CGBs held by “other institutions”, typically little changed from month to month, jumped 196.49 billion yuan to 1.79 trillion yuan ($257.89 billion) in July, according to data from China Central Depository and Clearing Co (CCDC).

“There exists the possibility of central bank purchases of government bonds,” said Ming Ming, head of fixed income research at CITIC Securities said of the data in a note.

He cited the bank’s second-quarter monetary policy report last week, which called for monetary and fiscal policy to work together and to encourage smooth issuance of government bonds.

The People’s Bank of China (PBOC) cannot buy government bonds on the primary market, but is permitted to do so on the secondary market.

Improved access after recent reforms, the sheer size of the Chinese govt bond market, the trend towards inclusion in global bond indexes, high relative yields, and portfolio diversification benefits may all be contributing to increasing foreign investor flows into Chinese govt. bonds, which reached $20bn in July alone.