Does “the central bank openly borrows from the bond market” really mean buying government bonds to increase the money supply? (This article does not intend to diss anyone, so don’t take it personally)
On July 1, the People's Bank of China issued a message: "In order to maintain the stable operation of the bond market, based on prudent observation and assessment of the current market situation, the People's Bank of China has decided to conduct treasury bond borrowing operations for some primary dealers in open market operations in the near future."
As soon as this news came out, the Internet was greatly shocked. I didn't want to participate in this topic, after all, it involves policy issues, but I didn't expect that this week I saw a lot of ridiculous remarks from so-called "big guys". They really wanted to criticize China for the sake of criticizing it. They are really brainless.
I have seen many people's comments, basically one-sidedly saying that China has started to implement QE, flooding the market, printing money, and there will be inflation, etc., which is very realistic, but are you sure that borrowing treasury bonds is flooding the market? This exposes the "underwear" of knowledge. Borrowing, even credit borrowing, is to borrow long-term bonds with zero credit cost, and then sell them. The follow-up is not buying, but selling treasury bonds. The People's Bank of China has clearly proposed to sell long-term bonds through the secondary market. May I ask, is this releasing liquidity or recovering liquidity? Without looking at anything, just focusing on borrowing treasury bonds to criticize, it is really brainless.
On July 1, as the news came out, China's long-term treasury bond futures prices fell and long-term treasury bond yields rose. This is the main reason for the central bank's intervention.
Why sell government bonds, especially long-term bonds?
I have written a short article about this before. Borrowing government bonds on credit, and then selling them, this is a decomposition action, raising a hand, and then slapping it. In the past, the People's Bank of China has clearly indicated that it is ready to intervene in the market to influence the Chinese bond market. Why is this? And who is the hand raised this time?
As mentioned above, the price of long-term Chinese bonds has been rising recently, and the yield has been falling. Many domestic institutions have been scrambling to arbitrage long-term bonds, which has led retail investors to blindly follow suit. At the same time, many external institutions in the peripheral markets, such as Hong Kong, have also been scrambling to grab long-term bond shares, which has led to the continuous decline in the price of long-term Chinese bonds recently. The People's Bank of China has repeatedly warned of the risk issues in the bond market and even warned that it would intervene in the treasury bond sales market, but the market has insisted on its own way and the price of long-term bonds has not come down. It has even forced the central bank to issue ultra-long bonds.
"Since my kind words of persuasion are useless, then I will just take action directly." This is the purpose of the central bank's borrowing treasury bonds to sell them. Currently, there are many institutions in the country that are overly pessimistic about the future, and there are factors behind them that are influenced and manipulated by other capitals. As a result, they are rushing to buy up Chinese long-term bonds for arbitrage. The original market behavior is normal, and it is normal for businessmen to pursue profits, but the excessive scramble for long-term bonds, coupled with all kinds of hype, is intended to short the Chinese economy.
"If you fight, I will fight." Since persuasion is ineffective, then we will see in the market. Warnings are ineffective, then we will sell a large amount of treasury bonds to see if you will buy them. In particular, this kind of borrowing treasury bonds and then selling them is a direct shorting of China's long bonds. This has caused many institutions to gradually reduce their buying volume. At the same time, the price of China's long bonds has fallen and the yield has risen.
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The above is the whole story. In fact, there are multi-faceted games in the bond market. I don’t want to get involved or comment on it. After all, I’m just a “stinky cryptocurrency trader.” But I really can’t stand it. You should just make money in the cryptocurrency circle. You charge fees and cut leeks, but why do you follow the trend and blindly criticize it?
There were many QE and money-releasing monsters on the Internet before, shouting that China would release money to save the economy like Japan did before, and carried out quantitative easing. How many opinions are there in this? As a result, many people followed suit and shouted blindly. In the end, when the actions of the People's Bank of China were mentioned, they thought that they were doing waterproof QE. I would like to ask if you have taken a good look at the yield and price of government bonds recently. The yield is so low, and the central bank is buying government bonds again. Is this playing a self-destruction? Even if you want to criticize China, you should not look down on the IQ of the Chinese people.
As a media creator, I don’t ask you to be patriotic, but please follow the principle of seeking truth from facts. When encountering something, we should do more research before criticizing it. Even if you use AI to check it, it is better than blindly criticizing it. It really seems very unskilled. Everyone thinks they are financial bigwigs, but they don’t even look at a few minutes of data and shout that China is going to release money. Do you really understand the action of releasing money through treasury bonds? How to release money by selling treasury bonds?
I repeat again, this article is not intended to DISS anyone, it is just my personal opinion, don’t take it personally!
