SHANGHAI - China's central bank's decision to lower the collateral requirement for medium-term loans will alleviate the"asset famine" pressure on the bond market, state media reported on Tuesday, citing a source.
The move comes amid a record-long rally in China's sovereign bond markets that has prompted repeated central bank warnings and measures to put a floor under falling yields and prevent a market bubble. "A large amount of bonds will be released if financial institutions choose to sell long-term bonds after the change to collateral requirement, effectively alleviating the pressure of 'asset famine' in the bond market," the official Securities Times reported, citing a source close to the central bank.
The PBOC told Reuters earlier this month that it had hundreds of billions of yuan worth of bonds at its disposal to borrow, which it could sell, part of a plan markets see as an effort to cool a powerful bond rally.