From CNBC: 2024-08-14 22:42:37

China is working to stabilize its bond market, fearing financial instability due to tight capital controls. The 10-year Chinese government bond yield has risen sharply recently. This poses a threat to the financial sector, with insurance companies facing capital adequacy concerns and potentially needing trillions of yuan to cover losses.

Analysts have noted that the spike in bond yields is a cause for concern, especially for insurance companies that have large investments in the bond market. The People’s Bank of China (PBoC) has stepped up intervention efforts to prevent further turmoil. The lack of investment options in China has led to the dominance of the bond market for institutional investors.

The Chinese government has expressed worries about the rapid decline in bond yields, warning that excessive buying could negatively impact the economy. The PBoC has issued repeated warnings about risks while trying to maintain financial stability. Reforms in the corporate bond market are seen as a way to promote efficient credit allocation and sustainable economic growth.

China’s domestic bond market continues to face volatility, prompting calls for reforms to encourage efficient credit allocation. The PBoC aims to reinforce its actions periodically to ensure financial stability. Analysts emphasize the importance of diversification and discipline in the market to support China’s economic growth and reduce debt in the long term.

Read more: China’s bond market intervention reveals financial stability worries