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Keegan Matheson on Blue Jays, Baseball Memories, and More | SaltWire #writer #torontobluejays #mlbBEIJING/SHANGHAI - A scarcity of low-risk assets in China's financial sector is obstructing the central bank's plans to make its monetary policy toolkit more efficient with a return to the treasury bond market after a 17-year hiatus.
"Using treasury bond trading as the main market operation tool would greatly improve the PBOC’s monetary policy framework, especially the interest rate transmission," said a policy adviser, asking for anonymity to discuss a sensitive topic.The PBOC did not immediately respond to a request for comment.
State media quoted an unidentified central bank official in April saying government bond issuance must be large and steady to avoid sharp interest rate volatility.The dominance of credit in the Chinese economy, with most flows controlled by state banks, has long been a source of concern over capital misallocation and a headache for the central bank, whose repeated rate cuts and liquidity injections have struggled to temper deflation fears.
But the issuance is mainly dominated by local governments and their financing vehicles and policy banks, while the buyers are mostly banks which tend to hold them until maturity.Only a fraction of these bonds are actively trading in untransparent secondary markets, traders and analysts say. One way forward for the PBOC would be to wait for more issuance to hit the market, limit itself to small moves, and choose the timing of any purchases carefully, to avoid triggering talk of deficit monetisation.
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