China state-backed banks named and shamed for manipulating prices as bond rally takes toll
- Central bank seen trying to counteract forces suppressing bond yields, but without monetary tightening, a ‘short-term pause’ to the rally may be the best outcome
The National Association of Financial Market Institutional Investors (NAFMII), an affiliate of the People’s Bank of China, announced the start of a self-disciplinary investigation into four rural commercial banks in the province: Jiangsu Changshu Rural Commercial Bank, Jiangsu Jiangnan Rural Commercial Bank, Jiangsu Kunshan Rural Commercial Bank, and Jiangsu Suzhou Rural Commercial Bank.
The investigations led to discoveries of government-bond-transaction violations, and some of the most serious violations have been referred to the People’s Bank of China for administrative penalties, the NAFMII said in follow-up comments on Thursday, adding that they were investigating and processing other similar cases.
The central bank certainly has a history … of using all of the tools at its disposal to try to influence market prices
The Jiangsu branch of the People’s Bank of China has instructed local rural commercial banks to be cautious about holding long-term bonds, according to Bloomberg. During a period when state-owned banks are selling off long-term bonds, these rural banks are being advised not to significantly increase their bond holdings and to manage their position risks carefully.
The PBOC has been clear this year on its intentions to clamp down on the bond rally, which has been driven by short-term factors, including speculative ones, said Thomas Mathews, head of markets for the Asia-Pacific region at Capital Economics.
