The PBOC will soon start borrowing government bonds, opening the door to sales aimed at arresting the decline in long-term yields, which the central bank sees as a growing financial stability risk. But the forces pushing down yields seem unlikely to reverse anytime soon and would require substantial intervention to counteract. Without wider monetary tightening, which doesn’t appear to be on the cards, the best the PBOC can probably hope to achieve is to engineer a short-term pause to the bond rally.
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