Quantitative easing with Chinese characteristics? China’s July bond data hint at central bank’s rare move to buy government debt

The People’s Bank of China may have bought government bonds from domestic banks in July, a rare move that has analysts puzzling over the monetary authority’s policy intentions amid a record amount of government debt issuance.

Sovereign bonds held by “other” investors – a category that includes central banks and clearing houses -rose by 196.5 billion yuan to 1.78 trillion yuan (US$256 billion) last month, according to data released by China Central Depository & Clearing last week.

The increase is the biggest since Bloomberg data started in late 2018, prompting analysts from Citic Securities to Nomura Holdings and GF Securities to speculate the central bank might have bought some government debt in the month. The PBOC didn’t immediately respond to queries about the data.

Policymakers have frequently said in the past they do not intend to enact the kind of bond-market purchases seen in developed markets and have restricted stimulus measures throughout the coronavirus crisis to moderate trimming of market interest rates and a more generous liquidity policy. But they have flagged a willingness to support the government’s fiscal policy.

Last week, the PBOC said in a policy report it’ll work with the Ministry of Finance to smooth government bond sales, without specifying the measures. Analysts have expected the institution will manage liquidity supply to help local banks absorb a record amount of special bond sales this year.

“There’s a possibility that the central bank has bought sovereign bonds,” Ming Ming, head of fixed-income research at Citic Securities in Beijing, wrote in a note, though he cited the possibility of other factors being behind the rise. The move is more likely to be an effort to “directly finance the real economy” rather than quantitative easing, with the PBOC buying antivirus bonds that invest in projects with a steady return, he said.