The People's Bank of China (PBOC) announced on the 30th that in August 2024 it conducted open market government bond trading operations, buying short-term government bonds from and selling long-term government bonds to some primary dealers in open market operations, with a net purchase of bonds with a face value of 100 billion yuan for the whole month.

Wen Bin, chief economist of China Minsheng Bank, told reporters that the PBOC's buying short-term and selling long-term government bonds in August, with a net purchase, reflects the PBOC's intention to regulate the government bond yield curve and maintain a reasonable term spread and long-end interest rate level for government bonds, so as to avoid excessive market speculation and the accumulation of potential financial risks.

He also mentioned that the PBOC's net purchase of government bonds actually injects base money into the market, adding a means of releasing liquidity. This not only safeguards the economy and restores an appropriate monetary environment, but also reflects the further evolution of the PBOC's monetary policy framework: gradually diminishing the role of MLF (Medium-term Lending Facility) in money injection and replacing it with net purchases of government bonds. As a large volume of MLF matures later, a replacement window may emerge, which can also serve to dilute the policy rate role of MLF.

It is reported that this is the first time in history that the PBOC has bought and sold government bonds. On July 1 this year, the PBOC announced that it would soon conduct government bond borrowing operations with some primary dealers in open market operations, marking the formal inclusion of government bonds in the PBOC's open market operation toolbox.

At the Lujiazui Forum in June this year, PBOC Governor Pan Gongsheng said that including government bond trading in the monetary policy toolbox does not mean pursuing quantitative easing, but rather positioning it as a channel for base money injection and a liquidity management tool, representing an important direction for the evolution of the future monetary policy framework.