The PBOC released May liquidity operations showing net open-market government
bond injections of 50 bln yuan. Dongfang Jincheng chief macro analyst Wang Qing
said ample market liquidity and no need for large-scale long-term injections
explain the low net operations, reflecting the central bank’s flexible use of
open-market tools to guide market rates around the policy rate. Market
participants note the PBOC is deploying a wider range of liquidity tools with
greater flexibility, maintaining policy direction while switching between a
'withdraw-first-then-release' rhythm and 'peak-shaving/valley-filling'
adjustments. Wang expects China’s 10-year government bond yield to trend lower
amid evolving geopolitics, slower international oil price gains, cooling
domestic inflation expectations and volatile April macro data — a factor behind
May’s small net injection. He adds that if the 10-year yield falls below 1.7%,
further cuts to net bond-trading injections or a pause in open-market government
bond trading are possible.
