Recently, the bond market has seen divergent trends, with the yields on medium and short-term government bonds slightly rebounding, but the ultra-long end remains strong.
On September 24, at a press conference held by the State Council Information Office, the central bank governor Pan Gongsheng stated that the decline in Chinese government bond rates was due to several factors: firstly, the People's Bank of China (PBOC) has guided market rates lower through policy rates; secondly, the slow supply of government bond issuance in the early period; and thirdly, the lack of risk awareness among some small and medium-sized financial institutions, which has exacerbated the situation and led to a herding effect.
"At present, China's long-term government bond yields are hovering around 2.1%.
The level of government bond yields is the result of market-driven formation, and the PBOC respects the role of the market.
At the same time, without a doubt, it has created a favorable monetary environment for China to implement an active fiscal policy," Pan Gongsheng emphasized.
However, it is also important to recognize that interest rate risk is a crucial part of financial institutions' risk management.
"The case of Silicon Valley Bank in the United States is very meaningful.
Such a risk event reminds us that central banks need to observe and assess market risks from a macro-prudential management perspective and take appropriate measures to weaken and prevent the accumulation of risks.
This is an important responsibility of central banks," Pan Gongsheng said.
It is reported that currently, the government bond yield curve, as an important price signal, still has issues such as insufficient long-end pricing and insufficient stability.
The PBOC's risk warnings on long-term government bond yields and enhanced communication with the market are aimed at curbing the herding effect that could lead to a one-sided decline in long-term government bond yields and potentially hidden systemic risks.
Pan Gongsheng emphasized that maintaining good trading order in the bond market is also a responsibility of the central bank.
Recently, the PBOC has found some price manipulation, account lending, and interest transfer activities in the bond market.
"We will increase the investigation and punishment of illegal and irregular behaviors in the interbank bond market and announce them to the public in a timely manner.
The National Association of Financial Market Institutional Investors has already publicly disclosed several cases, and we are currently in the process of investigation.
Once the investigation is completed, we will announce it to the whole society," he said.
In recent years, with the rapid development of China's financial market, the scale and depth of the bond market have gradually increased, and the conditions for the central bank to buy and sell government bonds and inject base money through the secondary market have gradually matured.
Currently, the PBOC has included government bond trading in its monetary policy toolkit and has begun to try operations.
We are also working with the Ministry of Finance to jointly study and optimize the issuance pace, term structure, and custody system of government bonds.
The entire process of the PBOC conducting government bond trading in the secondary market will be gradual.
