July 3 (Reuters) - The People's Bank of China may very soon participate in the , for the first time in 17 years, to address sliding government bond yields. That should stabilise , while possibly helping the stock market and even the yuan.
Domestic investors' rush into Chinese sovereign debt has been attributed to an '', amid the stock market malaise.
Rising bond prices imply low confidence in China's economy and expectations of disinflation, the central bank's economic outlook. A prolonged disconnect between market pricing and policy pledges could leave investors jaded, diluting the intended effect of future support measures.
Since verbal reassurances have failed to assuage investor doubt, and has disappointed, the PBOC needs to use actions rather than words.
If the PBOC succeeds in cooling bond prices, it might push some investors toward other relatively safe assets such as dividend-yielding stocks, supporting broader Chinese equities.
The resulting rise in Chinese government bond yields would also narrow the gap against U.S. Treasuries, reducing the appeal of selling the yuan for carry-trade strategies. Shoring up the yuan now would give the PBOC leeway to allow weakness later to cushion the effect of potentially harsher U.S. trade tariffs.
Given the multiple positive effects of the PBOC's planned foray into the bond market, it could happen the Communist Party's begins on July 15.
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CNY: https://tmsnrt.rs/3xG8qXk [https://tmsnrt.rs/3xG8qXk]
CNH: https://tmsnrt.rs/3W5Fr8I [https://tmsnrt.rs/3W5Fr8I]
CN10y: https://tmsnrt.rs/3znlEsi [https://tmsnrt.rs/3znlEsi]
(Ewen Chew is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai)
((ewen.chew@thomsonreuters.com [ewen.chew@thomsonreuters.com]))
