(Bloomberg) -- China’s central bank offered little in the way of relief to bond traders as it allowed last week’s massive cash injections to mature.
The People’s Bank of China skipped open-market operations again Tuesday, effectively draining 250 billion yuan ($35 billion) in liquidity from the financial system as funds come due. It said fiscal spending at the end of the month will offset maturities, according to a statement. Another 290 billion yuan is maturing in the next three days.
Whether China will act to slow the sudden downward spiral in government debt has become a key question for investors. Monday’s effective net withdrawal spooked a bond market already under pressure from returning risk appetite, with China’s 10-year yields surging the most since April. Selling momentum on sovereign notes was the strongest since late 2017.
Still, analysts expect the central bank will inject one-year cash via a targeted tool this week. Zhaopeng Xing, a markets economist at ANZ Bank China Co., predicts more than 300 billion yuan in targeted medium-term loans will be offered Wednesday. A spike in 12-month interest-rate swaps shows traders are pricing in tighter liquidity.
The yield on China’s benchmark government bonds has jumped about 30 basis points since a low in September, as optimism increases that the country will soon sign a partial trade deal with the U.S. Accelerating inflation also adds pressure to the bond market, as it means Beijing won’t want to inject too much liquidity and risk inflating prices further.
Bonds were little changed in early Tuesday trading.
