China's central bank announced on Friday that it will temporarily halt treasury bond purchases due to a shortage of supply, leading to a rise in yields across various maturities.
The People's Bank of China (PBOC) stated it would consider resuming bond buying based on supply and demand conditions in the government bond market.
This decision follows the PBOC's repeated warnings about bubble risks in China's overheated bond market, where long-term yields have consistently reached record lows.
In response to the announcement, yields, which move inversely to bond prices, surged. The 30-year treasury yield rose by five basis points in early trading, while the 10-year yield increased by four basis points.
Meanwhile, the Bank is continuing to try to cap USD/CNY:
The PBoC need to stop the yuan falling, it wants to keep the potential for this to happen as a threat if Trump hitds China hard on tariffs. I wrote on this yesterday ICYMI:
after the low, low, low inflation data for December published yesterday:
- The People's Bank of China is wary of providing too much stimulus, such as a rate cut, due to financial stability and yuan weakness concerns.
- A political consideration now is that China will want to hold off on letting the yuan slide, keeping the threat of that happening in case its needed as a leverage tool in the event of Trump tariffs.
