SHANGHAI (Reuters) – China’s central financial institution is decided to keep up a standard upward-sloping yield curve and proper bond-market dangers, the bank-backed Monetary Information reported late on Friday, citing business sources and consultants.
The report is the newest warning to the nation’s bond market after the Individuals’s Financial institution of China (PBOC) sounded issues and launched plans to promote treasury bonds to chill a bond rally.
“The bond market won’t rise forever, and there is a growing risk of a reversal in the current market,” the newspaper quoted an unnamed business supply as saying.
The official media added that some rural business banks, which have increased dangers than their greater friends, have an obese place on medium- and long-term treasury bonds.
Extending funding durations permits monetary establishments to pursue increased returns. However sharp rises in rates of interest in opposition to the backdrop of such a maturity mismatch will trigger losses.
“Bearing large losses (from bond investments) will hit the bottom line of capital and amplify their interest-rate risks and credit risks,” the business supply mentioned.
PBOC Governor Pan Gongsheng mentioned final month that China should tackle the sort of dangers that led to the collapse of the U.S. Silicon Valley Financial institution final 12 months.
The PBOC instructed Reuters final week it had a whole bunch of billions of yuan price of bonds at its disposal to borrow, and would promote them relying on market situations, a part of a plan markets see as an effort to chill a robust bond rally.
“The borrowing and selling of treasury bonds will help to balance market supply and demand and prevent risks in the bond market,” the official newspaper mentioned, citing an professional.
“There is no need for the market to worry about the impact of the sale of treasury bonds on liquidity. The central bank’s stance of maintaining reasonably ample liquidity conditions has not changed.”
