SHANGHAI (Reuters) – China’s central bank summoned some fund managers on Friday to warn against frenzied buying of government bonds that has driven yields to record lows, two sources told Reuters.
Such meetings between the People’s Bank of China (PBOC) and institutional investors, aimed at flagging bond investment risks, have become regular recently, occurring several times a week, said one of the sources.
The scramble for bonds as investors seek safer assets and bet on lower yields not only undercuts Beijing’s efforts to channel money into consumption and more productive economic efforts, but also raises the risk of a bubble in debt markets.
The central bank has said it will work on maintaining a normal upward-sloping yield curve, where long-term rates are above short-term rates. In August it began buying and selling more bonds in the open market.
“Everyone could be summoned for talks, unless you take an extremely passive approach toward bond investment,” said the source, who works at a major mutual fund house.
The move comes as China’s 10- and 30-year government bond (CGB) yields again hit record lows on Friday. Bond prices move inversely to yields.
Yields on benchmark 10-year government bonds are down a full percentage point since the beginning of 2024, and are trading around 1.58%.
Talk of the latest meeting surfaced in social media on Friday morning and caused bond yields to rise slightly.
The sources declined to be identified as they were not authorised to speak to the media. The PBOC did not reply to a Reuters request for comment.
Investors have aggressively scooped up CGBs as they head into 2025 betting there will be no miraculous recovery in the Chinese economy, particularly as incoming U.S. President Donald Trump has threatened tariffs in excess of 60% on imports of Chinese goods.
In mid-December, a central bank publication reported the PBOC had held meetings with some financial institutions which had engaged in aggressive bond trading activity and warned of vowed zero tolerance towards bond market “misbehaviours”.
China’s interbank market regulator National Association of Financial Market Institutional Investors (NAFMII) said at the year end it has held discussions with investors on the risks in the bond market and excessive expectations of monetary easing.
(Reporting by Reuters markets teams; Editing by Kim Coghill)
