By 
The People’s Bank of China (PBOC) has suspended treasury bond purchases, a move that briefly drove yields higher and ignited speculation about its efforts to stabilize the sliding yuan. The currency has been under pressure since the election of Donald Trump as U.S. president, reflecting broader economic and political uncertainties.
The decision, which marks the end of a five-month streak of bond buying, coincides with a sharp selloff in global bond markets. Analysts believe the PBOC is aiming to ensure domestic yields rise alongside global trends or at least prevent further declines. Following the announcement, yields initially spiked, though 10-year benchmark rates slightly eased by the evening.
Balancing Economic Growth and Yuan Stability
The PBOC’s policy shift highlights its delicate balancing act: supporting economic recovery with loose monetary policy, managing a rally in bond markets, and stabilizing the yuan amidst a strong U.S. dollar and widening interest rate gaps with the United States.
“It has indicated a willingness to loosen policy further. However, yuan weakness due to the strong dollar and widening differential with U.S. rates will complicate the PBOC’s position,” noted analysts from Commerzbank in a report.
The central bank attributed the halt in bond purchases to a shortage of market supply, signaling its intent to resume operations “at a proper time depending on supply and demand in the government bond market.”
China’s 10-year treasury yield initially climbed by four basis points but later settled slightly lower at 1.619%. The yuan showed slight gains before stabilizing at 7.3326 per dollar, a 16-month low.
Addressing Yield Gaps and Market Dynamics
Ken Cheung, chief Asian FX strategist at Mizuho Bank, stated, “One of the key reasons for the depreciation of the yuan is the widened yield gap between China and the U.S. The central bank is sending a signal to the market that the yield rate is unlikely to fall further.”
Bond prices in China have been on a prolonged rally, accelerating over the past two years as economic challenges in the property sector and stock market pushed funds into bank deposits and debt markets. However, the PBOC has repeatedly cautioned against bubble risks as long-dated yields hit record lows, even while hinting at further monetary easing.
Yuan Depreciation and Trade Concerns
The yuan has depreciated nearly 5% since September, largely driven by fears of additional U.S. trade tariffs under the Trump administration, which could add further strain to China’s economy.
Huang Xuefeng, research director at Shanghai Anfang Private Fund Co., suggested that the trend of declining bond yields may persist. He highlighted an “asset famine” situation, with limited high-quality investment opportunities available to investors.
Meanwhile, Financial News, a publication affiliated with the PBOC, quoted an economist cautioning against “excessive expectations on monetary policy easing,” reinforcing the bank’s measured stance as it navigates complex domestic and international challenges.
The PBOC’s actions underscore its commitment to stabilizing the financial system while addressing mounting pressures on the yuan and the broader economy.
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