Halister News

(Bloomberg) -- PBOC’s signal to deleverage is clear even as its decision to resume 14-day reverse repo operations will have little impact in near term, Bosera Funds research director of fixed income Chen Zhixin says.

• Central bank is in dilemma; on one hand it is alarmed by the increasing volume of repo transactions while on the other hand, it’s concerned that fast-pace deleveraging could trigger liquidity crush and financial risks
  • PBOC resumes 14-day reverse repo as a solution
• After liquidity crush in 2013, PBOC would be more cautious in using only pricing tool to prompt bond market deleveraging
• Move will not have material impact on bond market leverage
  • May mark the beginning of a series of curbing measures
• Expects PBOC to adjust funding cost and launch more policy guidances in the future to encourage gradual deleveraging
• Develeraging in the bond market will drive down return of wealth management products
• In the mid to long term, growth is decelerating and demand for loans will decline further, which will spur banks to put more capital into govt and policy bank bonds