(Yicai) July 5 -- The People’s Bank of China, the country’s central bank, said it has signed agreements to borrow Chinese government bonds worth hundreds of billions of yuan from financial institutions.

The PBOC will borrow the medium- and long-dated bonds without a fixed term or collateral, it told Yicai today.

The bank announced plans on July 1 to borrow treasury bonds from primary dealers in the open market and sell them in accordance with market conditions to maintain the stable operation of the bond market. The prices of China’s five-year, 10-year and 30-year government bond futures dropped sharply that same day.

They dropped again today. At the close of trading, the five-year futures had edged down 0.07 percent to CNY103.845 (USD14.291); the 10-year futures were 0.18 percent lower at CNY104.99; and the 30-year futures had fallen 0.31 percent to CNY108.10.

The bank’s move is aimed at lowering the prices and boosting the yields of long-dated treasury bonds. Financial institutions have been buying up huge quantities of them this year amid a dearth of reliable investment channels, as they are seen as a safe-haven asset. This resulted in a surge in prices and a corresponding drop in yields, even below 2.5 percent, the lower limit of the policy range. 

Daily treasury bond trading in the secondary market ranges from CNY400 billion to CNY500 billion (USD55 billion to USD69 billion). If the PBOC intends to influence the market, its operations will need to be at least several tens of billions of yuan, said Zhang Jiqiang, a fixed-income analyst at Huatai Securities. 

Chinese commercial banks held about CNY20 trillion (USD2.8 trillion) of treasury debt at the end of May, according to ChinaBond data. After excluding the government bonds set aside for pledges, the total available for borrowing from primary dealers is about CNY8 trillion, Zhang calculated. 

Editors: Dou Shicong, Tom Litting