Tiongkok PBoC is short selling Bond de woh....potential huat big big?

[k1976]

China Central Bank Uses Hedge Fund Tactic to Tame Bond Bulls​

• PBOC has arranged to borrow and sell government bonds
• Governor Pan is worried about a bubble in $4 trillion market

The People's Bank of China (PBOC) building in Beijing, China.
Source: Bloomberg
By Tania Chen, Shulun Huang, and Ruth Carson
July 17, 2024 at 6:00 AM GMT+8
Updated on
July 17, 2024 at 11:33 AM GMT+8
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China’s central bank is readying a bold new experiment in global monetary policy — taking a leaf out of the hedge fund playbook and arranging to short sell bonds.
As President Xi Jinping and his top Party colleagues prepared for this week’s once-in-five-year Third Plenum to chart the broad economic path ahead, Governor Pan Gongsheng’s People’s Bank of China has been busy lining up “hundred of billions” of government bonds it could sell to prevent a bubble forming in the nation’s $4 trillion debt market.
https://www.bloomberg.com/tips/

 

[k1976]

WHAT ARE THE TEMPORARY REPOS AND REVERSE REPOS?​

Both repos and reverse repos are forms of short-term cash management instruments that allow primary dealers to swap government bonds for cash with the central bank, in order to either borrow or park cash.
Under these temporary overnight repos, the PBOC can sell securities to primary dealers and agree to buy them back the following day, effectively draining cash from the financial system. Reverse repos help the PBOC inject funds.

WHAT ARE THE DETAILS OF THE PBOC'S TEMPORARY REPO OPERATIONS?​

The PBOC has said temporary overnight repo and reverse repo operations will take place in the afternoon, between 4 p.m. (0800 GMT) and 4:20 p.m. on a working day, if it decides it is necessary based on market conditions. This is in contrast to its other routine daily operations conducted in the morning.

 

[k1976]

WHY HAS THE PBOC STARTED THESE REPOS?​

Analysts believe the mechanism enables the seven-day reverse repo rate to become a new policy benchmark, after PBOC Governor Pan Gongsheng said last month the rate "basically fulfills the function" of the main policy rate but a narrower interest rate corridor may be needed.

The interest rates on the temporary repos and reverse repos will form the new interest rate corridor with a width of 70 basis points, analyst say. The market now trades a wide 245 basis points range between the seven-day standing lending facility (SLF) rate and the central bank's interest rate on excess reserves (IOER).