China’s plans to issue billions of dollars in government bonds before the end of the year could trigger a correction in the price of the country’s Treasuries, people close to the central bank have warned, triggering what some have called a bubble, as reported by the Financial Times.
The warning comes after frenzied buying that has sent prices of China’s 10-year central government bonds soaring, pushing up prices of China’s 10-year central government bonds. yields below 2.2% and prompted the People’s Bank of China to warn that a sudden reversal could threaten financial stability. Official data and state media reports indicate that as of July, the government had yet to issue just over half of its planned 2024 quota of ultra-long-term local government bonds and special central government treasury bonds, with a total of About 2.68 trillion yuan ($376 billion) remains to be issued.
“When these fiscally driven government and local government bond issues peak at the end of the year, they represent billions of dollars in volume. The possibility of a significant reversal in yields is very high,” said one of the people close to the central bank.
Economic slowdown
China’s economic slowdown has led to a surge in bond issuance in recent years. These include special local government bonds, the proceeds of which are used by smaller authorities for projects and investments, and very long-term special Treasury bonds used to help stimulate the economy.
Despite the expected increase in issuance, the gloomy economic outlook and weak stock market have led investors, including Chinese banks, to pour into government bonds, raising concerns among regulators that the market is in crisis territory.
