For weeks the People’s Bank of China has voiced concern about a bubble forming in the country’s sovereign bond market. Now it has moved from talking about the problem to arming itself for its first direct market intervention in decades. On Friday the central bank said it had struck deals with several institutions to borrow several hundred billion renminbi of long-dated bonds that it can sell into the market to try to satisfy demand.
So far the PBoC only holds Rmb1.52tn in government bonds, mostly with shorter maturities. Chen Long, co-founder of Beijing-based consultancy Plenum, said the PBoC’s approach had some similarities with the yield curve control adopted by the Bank of Japan during the past decade. But whereas the BoJ was trying to set a ceiling for yields, the PBoC is trying to create a floor.