PBOC to Conduct Trillion-Level Overnight Reverse Repos from Sept 28; Long-End Bonds Shine

September 23 (Cai Lian She) — Edited by Li Xiang — Despite a net liquidity drain of over 100 billion yuan today, money market rates remained stable and balanced. Yields on major interbank interest rate bonds traded in a narrow range, with long-end bonds performing notably well. The 30-year government bond continued to attract investor interest, and a coupon-focused strategy remained dominant. After market close, the People's Bank of China (PBOC) announced it would conduct trillion-yuan-scale overnight reverse repurchase operations from September 28 to October 8.

Treasury Bond Futures

Treasury bond futures closed lower across the board:

• 30-year contract: down 0.05% at 116.990 yuan
• 10-year contract: down 0.05% at 109.560 yuan
• 5-year contract: down 0.05% at 106.535 yuan
• 2-year contract: down 0.03% at 102.584 yuan

Interbank Bond Yields

Yields on major interbank interest rate bonds fluctuated within a narrow range. As of 16:30:

• 10-year active government bond (260016): yield up 0.2 bp to 1.674%
• 10-year active policy bank bond (260205): yield down 0.1 bp to 1.7575%
• 30-year active government bond (2600004): yield down 0.3 bp to 2.131%

(Source: Wind, compiled by Cai Lian She)

Primary Market

On the exchange bond market:

• "24 Yukaizhai" rose nearly 4%
• "24 Xingyuan 01," "25 Rongcheng 04," "24 Shentie 06," "25 Lufa K2," "24 Hengjian 04," "19 Guozhai 08," "26 Puyang Z1," "26 Yanguo 02," and "26 E Jiaotong 04" all rose over 1%

Market Commentary

Industry insiders noted that despite a net liquidity drain of over 100 billion yuan today, money market rates remained stable and balanced. The weighted average of DR001 stood at approximately 1.36%, and sentiment around quarter-end liquidity was neutral. With support from both fundamentals and liquidity conditions, the bond market's direction now hinges on further positive catalysts. However, yields on 10-year and 30-year government bonds are already near their year-to-date lows. Recent activity has been driven more by trading desks than allocation desks, suggesting limited room for further declines. At the same time, the likelihood of a sharp sell-off remains low. A coupon-focused strategy continues to prevail, with the ultra-long end remaining the preferred segment for bullish positioning.

Open Market Operations

The PBOC announced that on September 23, it conducted 8 billion yuan in 7-day reverse repurchase operations via a fixed-rate, quantity-based bidding method, fully meeting the demand of primary dealers. The operation rate was 1.40%, with a bid volume of 8 billion yuan and a winning volume of 8 billion yuan.

According to Wind data, 110 billion yuan in reverse repos matured today, resulting in a net drain of 102 billion yuan on a single-day basis.

Additionally, the PBOC issued 60 billion yuan in 6-month RMB central bank bills in Hong Kong, with a winning rate of 1.37%.

Post-Market Announcement

After market close, the PBOC announced that to better match short-term liquidity needs of the banking system, it will conduct overnight reverse repurchase operations from September 28 to October 8. The operations will use a fixed-rate, quantity-based bidding method, with a daily maximum of 1 trillion yuan.

Liquidity Conditions

Shibor — Short-term tenors mostly declined:

• Overnight: down 0.27 bp to 1.3613%
• 7-day: down 0.53 bp to 1.384%
• 14-day: down 0.5 bp to 1.43%
• 1-month: up 0.2 bp to 1.4253%

Interbank Repo Fixed Rates — Mixed:

• FR001: up 0.12 bp to 1.3812%
• FR007: unchanged at 1.42%
• FR014: down 3.0 bp to 1.43%

Bank-to-Bank Repo Fixed Rates — Mostly unchanged:

• FDR001: unchanged at 1.36%
• FDR007: down 1.0 bp to 1.38%
• FDR014: unchanged at 1.43%

Interbank Repo Rates — Data as follows:

(Source: Wind, compiled by Cai Lian She)

Certificate of Deposit (CD) Market

Primary Market:

• 3-month state-owned bank CDs saw good demand at around 1.44%
• 1-year state-owned bank CDs were quoted in the 1.47%–1.49% range

Secondary Market:

• 3-month state-owned bank CDs traded at approximately 1.44%, down 0.75 bp from the previous session
• 1-year state-owned bank CDs traded at 1.4925%, roughly flat from the previous session

(Source: Wind, compiled by Cai Lian She)