bond

Beijing – Friday, July 25, 2025: China’s central bank made a major move on Friday, injecting 601.8 billion yuan (approximately $84 billion) into the financial system through reverse repo operations. The goal: to defuse growing panic in the bond market before it spirals into a full-blown financial crisis.
This was the largest daily liquidity injection since January, and it came as bond yields surged sharply throughout the week. The yield on 30-year Chinese government bonds had risen for seven consecutive days—until Friday, when the trend finally broke.

🔹 Market on the Edge of Panic
The situation was nearing a critical point. Selling pressure was mounting, futures tied to long-term bonds had been falling for over two years, and fears of a systemic collapse were rising fast. The People's Bank of China (PBOC) stepped in to prevent a potential chain reaction.
Two main factors have been suppressing demand: shaky trade truce with the U.S. and China’s ongoing battle with deflation. Together, they make bonds far less appealing to investors.

🔹 Redemptions Trigger Domino Effect
The pressure had been building for some time. Data showed a sharp spike in bond fund redemptions on Thursday. A key indicator tracking withdrawals from fixed-income funds hit its highest level since last October. Over the past two years, the volume of bonds held by these funds nearly doubled—meaning withdrawals now carry greater impact.
Analysts from Huatai Securities, led by Zhang Jiqiang, warned that the pressure is unlikely to ease on its own:

“Based on past experience, the bond market may face intensified stress once fund redemptions begin,” they said.

If redemptions continue, funds will be forced to sell more bonds, pushing prices even lower and triggering further exits.
They added that unless the PBOC continues injecting liquidity—either via open market operations or direct bond purchases—the situation could deteriorate further. Another option to halt the bleeding might be slowing capital flow into the stock market, which has been siphoning cash away from bonds.

🔹 Rapid Withdrawals Signal Deep Trouble
Things appear to be accelerating. Domestic funds pulled 120 billion yuan from bond positions in just three trading days through Thursday. This is not a mild correction—it’s a full-scale exit.
Local media reported that more than 90% of the 3,182 Chinese bond mutual funds tied to medium- and long-term debt posted losses between Monday and Wednesday. Meanwhile, the Finance Ministry attempted to sell new 30-year special government bonds on the primary market.
The average yield reached 1.97%, the highest since March. Investors demanded higher returns for taking on the risk—another sign of eroding trust and rising borrowing costs across the board.

🔹 Corporate Bond Market Feeling the Strain
The credit market is also feeling the pain. This week, the average yield on AAA-rated three-year corporate bonds rose by 11 basis points—a notable move in such a highly rated segment. According to the ChinaBond index, it's heading for the biggest weekly jump since February.
Unless the central bank continues to inject liquidity or introduces new measures, the bond market could face further losses. One way to ease pressure might be to cool down the stock market, which is currently drawing away investor funds.

#china , #bond , #economy , #Liquidations , #worldnews ,

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