Chinese authorities are going to extraordinary lengths to tighten their grip on the world’s third-largest government bond market.
But the risk is that meddling by authorities detaches the market from its economic fundamentals and undermines long-term investor confidence. The government’s attempts to intervene in shares and currency trading in recent years—with sometimes chaotic consequences—have deterred international money managers.
“All of this reduces market transparency, something that global fixed-income investors cherish, and could prevent them committing funds to Chinese bonds when there are many competing options around the world. The debt rally may be over for now, but the fallout could take months to clean up,” said Mark Cranfield, Bloomberg macro strategist.
And while state banks have been in the market recently selling bonds of different maturities, investors are still waiting for the People’s Bank of China itself to do the same, using the “hundreds of billions” of government debt it said it has at its disposal through agreements with lenders.
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