On Thursday (August 29), the People’s Bank of China (PBOC) purchased 400 billion yuan worth of special national bonds from primary market dealers in open market operations, sparking market attention. Some analysts suggest that the authorities have quietly begun the era of “unanchored printing of money.”
According to the announcement by the PBOC on August 29, the People’s Bank of China conducted open market operations through a competitive bidding process for spot bond repurchases, buying 400 billion yuan of special national bonds from primary market dealers, with 300 billion yuan of “Special National Bond 01 for 2024” and 100 billion yuan of “Special National Bond 02 for 2024”.
On the same day, the Ministry of Finance of the Chinese Communist Party (CCP) announced the completion of the issuance of 400 billion yuan of special national bonds. The first and second tranches have maturities of 10 years and 15 years respectively, with issuance values of 300 billion yuan and 100 billion yuan, and coupon rates of 2.17% and 2.25% respectively.
Under Chinese law, the PBOC is not allowed to directly purchase government bonds in the primary market, and over the past 20 years, the PBOC has typically avoided buying such bonds in the secondary market.
The Wall Street Journal reported that while it is not clear when the PBOC started trading bonds in the secondary market, with the continued bond buying frenzy over several months, the PBOC has hinted at being prepared to enter the market, possibly as a seller, contrary to investors’ expectations.
Analysts believe that with the slowdown of the Chinese economy and a lack of confidence in economic growth, investors are seeking safe assets such as government bonds, driving up demand for hedging, which has pushed long-term bond yields to historic lows. The PBOC’s move may aim to stabilize the plunging long-term bond yields.
However, the “Old Barbarian Channel,” known for tracking Chinese economic data, analyzed on the social platform X: “The era of unanchored printing of money has quietly begun. At those major turning points, you think there will be storms, thunder and lightning, dragons flying in the sky, wolves howling at the moon, and even the air is filled with signals of change. But no. The end always quietly arrives. When you suddenly realize it, you have already been swept away in the chaos of the end times, completely losing direction.”
“Curry_TW,” who works in the financial industry, commented: “The national debt problem, being able to shuffle things around temporarily, ultimately if they can’t hide it, they will resort to inflation to bear the burden, this is cutting the grass to its roots.”
“bill gauss” said: “What primary market dealer? Scammers just like to invent new names, in fact, it is the People’s Bank directly buying government bonds from the Ministry of Finance, directly increasing the money supply, currency devaluation.”
“wtftheworld” commented: “When the central bank buys government bonds, it can directly create new base currency. This process is called ‘currency creation’ or ‘currency issuance.’ Technically, the central bank purchases government bonds by adding ‘government bonds’ as an asset to its balance sheet and correspondingly increasing bank deposits (or reserves) as a liability, to fund the purchase of government bonds. In other words, the central bank ‘prints money’ to pay for these government bonds.”