The possibility of the central bank buying Treasury bonds seems to be increasing.
Recently, the Ministry of Finance publicly expressed its support for the central bank's purchase of treasury bonds, and the relevant person in charge of the central bank also proposed in an interview with the Financial Times that the central bank can carry out treasury bond trading in the secondary market, which can be used as a liquidity management method and a monetary policy tool reserve.
A number of market participants said in an interview with a Chinese reporter from a brokerage firm that if the central bank buys treasury bonds in the secondary market, it may be more based on the consideration of cooperating with the issuance of special treasury bonds, and will not become a conventional liquidity management tool in the short term. At the same time, even if the central bank buys treasury bonds, as long as the scale is appropriate and basically matches the economic growth rate and the target price level, it is a normal monetary policy operation, and there is no need to label it as "quantitative easing" and "monetization of fiscal deficits".
It may be combined with the issuance of special government bonds
On April 23, the Theoretical Study Center Group of the Party Group of the Ministry of Finance mentioned in an article published in the People's Daily that it is necessary to strengthen the coordination and cooperation between fiscal and monetary policies and financial reforms, improve the mechanism of basic money supply and money supply regulation and control, support the gradual increase in the purchase and sale of treasury bonds in the open market operation of the central bank, and enrich the monetary policy toolbox.
On the same day, the relevant person in charge of the central bank pointed out in an article answering a question from a reporter from the Financial Times that the central bank can carry out treasury bond trading in the secondary market, which can be used as a liquidity management method and a reserve of monetary policy tools. Under the current People's Bank of China Law, the PBOC prohibits the purchase of government bonds in the primary market, but in order to implement monetary policy, it can buy and sell government bonds, other government bonds and financial bonds and foreign exchange on the open market.
Ming Ming, chief economist of CITIC Securities, believes that the central bank's implementation of the purchase of treasury bonds may be mainly to maintain the smooth operation of the capital side. It is expected that the central bank's bond purchases may coincide with the issuance of special treasury bonds by the Ministry of Finance, so as to realize the release of liquidity through both monetary and fiscal channels, and alleviate the impact of the peak supply of government bonds on the interbank liquidity market.
"Considering that the large-scale issuance of government bonds in the second quarter may have a greater impact on market liquidity, the central bank does not rule out direct purchase of government bonds, especially special government bonds, in the secondary market. Under the large-scale issuance of treasury bonds, the central bank directly buys treasury bonds, which is intended to release liquidity and prevent large fluctuations in the price of treasury bonds, which is a move to maintain the stability of the capital market. Wu Zhiwu, senior director of the research and development department of China Securities Pengyuan, previously said in an interview with a Chinese reporter from a brokerage.
Tan Yiming, chief analyst of fixed income at Minsheng Securities, also said that there is still a distance between the mainland policy interest rate and zero interest rate, and there is still room for RRR cuts, or it has not yet reached the stage of opening QE.
It's not the same as QE
QE, also known as quantitative easing, refers to the intervention method in which the central bank buys medium and long-term bonds such as treasury bonds to increase the supply of base money and inject a large amount of liquidity into the market after the implementation of a zero-interest rate or near-zero interest rate policy, so as to encourage spending and borrowing. Some market participants believe that the central bank's purchase of government bonds means the opening of China's version of QE.
Regarding some misunderstandings in the market about the central bank's treasury bond trading in the secondary market, the head of the relevant department of the central bank said in a recent interview with the Financial Times that this move can be used as a liquidity management method and a reserve of monetary policy tools.
The person in charge of the relevant department of the central bank mentioned that many experts have pointed out that the central bank's open market operation can cooperate with the financial department to carry out deficit financing, but the scale of treasury bond issuance must be relatively large enough, and the pace of issuance must be relatively stable, so as to effectively achieve policy transmission and avoid large fluctuations in market interest rates; and the central bank's treasury bond operation will also be two-way in the future.
The person in charge also stressed that the central banks of some developed economies have been forced to buy government bonds on a large scale in one direction to achieve their monetary policy goals when their conventional monetary policy tools have been exhausted, while the mainland has insisted on implementing a normal monetary policy, and the PBOC's buying and selling of treasury bonds is completely different from the quantitative easing operations of these central banks.
Wu Zhiwu said that the condition of quantitative easing policy is that the traditional monetary policy such as the interest rate policy is no longer effective, and the general interest rate is close to zero interest rate. On the one hand, there are still many monetary policy tools on the mainland, such as RRR and interest rate cuts, and there is still enough room for the mainland economy to be repaired and there is no need for a very aggressive monetary policy. Therefore, the direct purchase of treasury bonds by the mainland central bank is not equivalent to the "Chinese version of QE".
Sun Binbin, chief analyst of fixed income at Tianfeng Securities, also believes that the central bank's trading of treasury bonds is one of the tools for the central bank to adjust interbank liquidity. However, bond trading in the course of open market operations is still different from "deficit financing". The former is a liquidity management tool of the central bank, and the latter is a further coordination and cooperation between the central bank and the finance, which has also gone beyond the scope of conventional interest rate policy regulation.
"The current background and mode of operation are somewhat different from those of developed countries that implement unconventional monetary policies. First, there is still room for monetary policy operation, and second, the central bank's treasury bond operation will be two-way in the future. The central bank also believes that even with the above operations, we are still sticking to the regular monetary policy operations. Sun Binbin said.
Improve the transmission efficiency of monetary policy
Some market participants believe that if the central bank directly buys bonds in the secondary market, it is conducive to improving the transmission efficiency of monetary policy.
Wang Qing, chief economist of Oriental Jincheng, told the Chinese reporter that the current yield on the long-term end of the bond is low, and if the central bank sells the long-term bonds it holds, it can directly adjust the yield on the long-term end of the bond and promote its return to the desired level.
After the Ministry of Finance publicly stated that it "supports the gradual increase in the purchase and sale of treasury bonds in the open market operation of the central bank", the yield on the long end of the bond market rose sharply on April 24.
Wang Qing said that the central bank buys and sells treasury bonds in the open market, and the operation targets can be both long-term and short-term treasury bonds. If the focus is on short-term interest rates, it will be dominated by buying and selling short-term Treasury bonds, and vice versa. Considering that the issuance of short-term treasury bonds has been relatively small in recent years, in order to meet the demand of the central bank for buying and selling treasury bonds in the open market, the Ministry of Finance will gradually increase the issuance of short-term treasury bonds in the future.
"This will enhance the flexibility of monetary policy control, and the transmission efficiency of monetary policy will also be significantly improved. Wang Qing said that the current central bank's open market operations are mainly based on quantitative control, and the impact on market interest rates is indirect. Both the 7-day reverse repo rate and the MLF operating rate are important policy interest rates, which can directly affect market interest rates, but cannot be changed frequently. At the same time, there will be a certain time lag in the transmission of quantitative operations to market interest rates, and the specific transmission effect will also be disturbed by other factors. The central bank can directly regulate market interest rates when buying and selling treasury bonds in the open market, which will increase flexibility and significantly improve the efficiency of price control compared with existing policy tools.
Gao Ruidong, chief economist of Everbright Securities, said in a recent research report that starting from the mainland's national conditions, the central bank's inclusion of treasury bonds in the secondary market into the monetary toolbox is mainly based on three considerations: base currency supply, through the secondary market to buy and sell treasury bonds to form a base currency throughput, and moderately break through the constraints of relending instruments to release base money; to support fiscal expansion, the role of monetary policy is not only reflected in the primary market to provide funding arrangements, but also to enhance the soundness and sustainability of fiscal policy in the long run; and the regulation of the interest rate curve, which the central bank has recently proposed"Focus on long-term yields" implicit concerns about the idling of funds due to the departure of interest rates from economic fundamentals.
"If the interest rates of different maturities on the interest rate curve can be adjusted directly through the buying and selling of treasury bonds in the secondary market, the transmission of monetary policy can be better realized. Gao Ruidong said.
Editor-in-charge: Gui Yanmin
Proofreading: Tao Qian