China Government Bonds Rise as Banks' Investment Options Curbed

  • Banks will raise allocations to sovereign notes: Guotai Junan
  • PBOC injects 100 billion yuan in open-market operations

China’s government bonds gained on speculation banks will pump more money into the securities as regulators tighten curbs on their investment options to limit risk-taking.

The People’s Bank of China said in a meeting on Monday it will require greater control over the amount of wealth management product funds they give to brokerages and money managers, according to people familiar with the matter. The central bank will impose caps on the amount of lenders’ proprietary funds that can be managed by other institutions, and tighten controls on leverage taken on in bond investments, said the people who declined to be named because the discussion was private.

The yield on notes due October 2025 fell seven basis points to 2.88 percent as of 4:30 p.m. in Shanghai, prices from the National Interbank Funding Center show. China’s 10-year yield dropped to a record-low 2.72 percent on Jan. 13, according to ChinaBond data.

“When the amount of money managed by other institutions falls, banks’ own investments will increase, which will lead to rising demand for the safest sovereign notes,” said Xu Hanfei, an analyst at Guotai Junan Securities Co. “Risk control requirements mean limited direct access to corporate notes to lenders.”

The central bank continued to add cash in Wednesday’s open-market operations before the Chinese New Year holidays next week. It auctioned 40 billion yuan ($6 billion) of 14-day reverse-repurchase agreements and 60 billion yuan of 28-day contracts, keeping the interest rates unchanged at 2.4 percent and 2.6 percent, respectively.

The seven-day repurchase rate, a gauge of interbank liquidity, fell nine basis points to 2.41 percent, a weighted average from the National Interbank Funding Center shows.

— With assistance by Helen Sun

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