-- The People’s Bank of China said it will borrow government bonds from primary dealers, a sign it may be contemplating selling securities to cool down a market rally.24-Hour Stock Trading Is Booming – and Wall Street Is Rattled
Ever since an old speech by President Xi Jinping mentioning PBOC bond trading as a potential tool came to the market’s attention two months ago, market watchers have debated how that would work in practice. Strategists said it would depend on the PBOC’s reasons to buy or sell bonds, be it an attempt to cool the overheated rally or a longer-term plan for better liquidity management in the financial system.
The PBOC has been pushing back against the rally — in May a newspaper backed by the monetary authority warned that leveraged bond-buying not only amplifies volatility but raises the risk of large losses in the event of a market reversal. “The central bank’s move meant that it could begin to sell government bonds via open market operations as soon as this week,” said Ming Ming, chief economist at Citic Securities. “At a time when 10-year yields have fallen to historic lows, selling CGBs helps stabilize long-term bond rates and prevents interest rate risk.”
Still, any operations by the PBOC may not drive up long-term yields too much, given the weak underlying economic fundamentals, according to Creditsights Inc. Press contact:Sam ConnattyTel.: +44 370 904 3601sam.connatty@capgemini.com Investor relations:Vincent BiraudTel.: +33 1 47 54 50 87vincent.biraud@capgemini.
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