pulszcasinofreespins| Central Bank responds to buying and selling treasury bonds: Reserves can be used as a liquidity management method and monetary policy tool

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The head of the relevant departments of the people's Bank of China said that the central bank's buying and selling of treasury bonds in the secondary market can be used as a way of liquidity management and as a monetary policy tool, the Financial Times, the head of the people's Bank of China, reported on Tuesday. This is the first time that the central bank has responded to the sale of government bonds.

The responsible person pointed out that the Central Financial work Conference proposed that "it is necessary to enrich the monetary policy toolbox and gradually increase the trading of treasury bonds in the open market operation of the central bank." the size of China's treasury bond market has ranked third in the world, and the liquidity has increased significantly, which makes it possible for the central bank to carry out the trading of treasury bonds in the secondary market.

"when the conventional monetary policy tools are exhausted, the central banks of some developed economies are forced to buy treasury bonds on a large scale to achieve their monetary policy objectives, while China adheres to normal monetary policy. The trading of treasury bonds by the people's Bank of China is completely different from the quantitative easing (QE) operations of these central banks." The person in charge said in an interview with the Financial Times.

Analysts pointed out that the implementation of QE is usually triggered by two conditions, one is that the real economic growth rate is close to zero, and the other is that the policy interest rate is close to zero. At present, China's economic growth has maintained a medium-to-high speed, with real GDP growth of 5% in the first quarter compared with the same period last year.Pulszcasinofreespins.3%PulszcasinofreespinsThe policy rate is still a long way from zero. For example, the seven-day reverse repo rate is currently 1.8%.

They say that, like other central bank monetary policy tools (reverse repurchase, MLF), buying and selling treasury bonds is essentially a tool for the central bank's balance sheet, and at this stage, the people's Bank of China is more inclined to use structural tools for precise drip irrigation. In 2023, the balance sheet of the central bank expanded by 4 trillion yuan, of which the subject of "debt to other savings companies" represented by medium-term Lending facilities (MLF) and structural instruments made a major contribution.

But in the long run, analysts say treasury bonds will play a growing role in monetary policy tools, such as the linkage between bond interest rates and credit rates. In addition, with the reduction of reserve requirements again and again, the future purchase of treasury bonds can also become a potential means of regulating the money supply.

Article 29 of Chapter IV of the people's Bank of China Law stipulates that the people's Bank of China shall not directly subscribe for or reimburse treasury bonds and other government bonds, that is, the central bank is prohibited from purchasing treasury bonds in the primary market. However, the people's Bank of China's participation in treasury bond trading in the secondary market is part of the central bank's monetary policy tool. Article 23 of Chapter IV of the people's Bank of China Law lists six monetary policy tools that the people's Bank of China can use to implement monetary policy, including "buying and selling treasury bonds, other government bonds, financial bonds and foreign exchange in the open market".

Around the year 2000, the people's Bank of China has carried out cash bond trading operations for many times, including treasury bonds, CDB bonds and import and export bank bonds. But after 2003, the central bank basically suspended spot trading, except for buyout purchases of special treasury bonds. The reason is that since 2003, with the expansion of the trade surplus and the substantial increase in the share of foreign exchange, the liquidity of the banking system is flooded, and the monetary policy is mainly to withdraw and hedge liquidity, and the main tools are the issuance of central bills and positive repurchase operations.

After 2014, in the face of a shortage of liquidity in the banking system, the central bank did not restart spot securities trading, but innovated various quantitative delivery tools based on collateral such as treasury bonds, such as MLF, and liquidity delivery through reserve requirement cuts and reverse repos.

Many experts pointed out that the open market operation of the central bank can cooperate with the finance to finance the deficit, but the scale of issuance of treasury bonds should be relatively large and the pace of issuance should be relatively stable in order to effectively achieve policy transmission and avoid large fluctuations in market interest rates.

In addition, the yield on long-term treasury bonds has continued to decline recently, with the yield on 30-year bonds falling below 2.5%. "in the process of economic recovery, we should also pay attention to changes in long-term yields," the people's Bank of China said in a press release at the regular meeting of the Monetary Policy Committee in the first quarter.

The head of the central bank said in an interview with the Financial Times that long-term Treasury yields always run within a reasonable range that matches long-term economic growth expectations. On the one hand, China's actual economic growth rate will remain at a reasonable level for a long time in the future, and the trend of rebounding for the better in the past year has been continuously consolidated. In addition, some institutional investors also believe that inflation is expected to pick up moderately from low levels in the future, and that long-term Treasury yields, as nominal interest rates, will rise as inflation picks up. Both of these will support long-term bond yields.