(Yicai) Dec. 3 -- China’s central bank injected a net CNY50 billion (USD7 billion) into the financial system through government bond trading last month to support liquidity during the annual year-end funding squeeze.

That was an increase of CNY30 billion compared with October, the People's Bank of China announced yesterday. The bank will continue to maintain ample liquidity, according to analysts.

The PBOC halted open market treasury bond trading earlier this year because of severe supply-demand imbalances and accumulating bond market risks, Governor Pan Gongsheng said in October, when the bank resumed trading as the market is now broadly functioning well.

The PBOC has added long-term liquidity through treasury bond trading for two months in a row, indicating that the market is operating well enough to meet the conditions for PBOC trading and signaling a persistently supportive monetary stance intended to steady growth this quarter and next, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International.

The bond market remains relatively weak though, so by increasing its government bond purchases compared with the previous month the central bank is offering some reassurance, said Ming Ming, chief economist at Citic Securities.

“The amount of bonds bought in November is a key indicator,” according to the fixed income team at Huaxi Securities. “If the amount bought is substantial, it could boost expectations for loose monetary policy. Conversely, if the amount is low, market confidence in loose monetary policy may further decline.”

Based on purchasing managers' index data, the team sees an increased likelihood of monetary policy easing this month or early next year. Before that, the bond market is still being constrained by new fund sale rules, and the yield on 10-year government bonds may continue within the range of 1.75 percent to 1.85 percent.

Looking ahead, Ming said there may be funding pressure at the end of December even with broadly loose liquidity, and short, sharp spikes in money market rates are possible. Given current liquidity trends, the PBOC’s net treasury purchases may remain steady or edge slightly higher, he pointed out.

Editor: Tom Litting