China is building its war chest for a sovereign bond market intervention

China is gearing up to intervene in its sovereign bond market for the first time in decades as yields on its debt are at record lows, the Financial Times reports. Following weeks of expressing its concern about record-low yields, the People’s Bank of China is now moving to build up firepower to sell CPY hundreds of bns of sovereign bonds as it looks to cool off demand for the paper. The country’s central bank will “continue to borrow and sell the bonds on an open-ended and unsecured basis,” according to the salmon-colored paper.

Demand for the sovereign bonds has been red-hot: Investors have been pouring into China’s sovereign bonds as the country’s economy stumbles due to an ongoing real estate market crisis and volatility in its equities. That’s pushed yields on 10-year bonds below 2.4% for the majority of the year, while the country’s central bank has said that the “ideal range” for yields on these notes is between 2.5-3%.

It’s going to take more than a limited intervention: Although the signaling from the People’s Bank of China has helped to some degree, pundits say the issue is more structural and is unlikely to be resolved entirely through a bond market intervention “unless the intervention is massive.” One Natixis senior economist tells the FT that the People’s Bank of China will likely need to buy up “at least 5% of outstanding government bonds … to make a significant difference.” Altogether, that would be around CPY 1.5 tn worth of bonds.

MARKETS THIS MORNING-

Asian markets are having another mixed morning, with Hong Kong’s Hang Seng index and Japan’s Nikkei both up, as China reports better-than-expected inflation data and Japan’s corporate goods price index rises in line with expectations. South Korea’s Kospi and the ASX 200 are both in the red.

Wall Street futures were little changed in overnight trading after the S&P 500 posted another record close, as traders celebrated Powell’s signals for a potential rate cut soon.

THE CLOSING BELL-

The EGX30 rose 0.2% at yesterday’s close on turnover of EGP 3.5 bn (18% below the 90-day average). Local investors were the sole net buyers. The index is up 14.4% YTD.

In the green: EFG Holding (+5.3%), GB Corp (+5.1%), and E-finance (+3.1%).

In the red: Abu Qir Fertilizers (-2.8%), Sidi Kerir Petrochemicals (-2.8%), and AMOC (-2.5%).

CORPORATE ACTIONS-

#1- Kouchouk is no longer representing Misr Ins. on TMG’s board: Finance Minister Ahmed Kouchouk has resigned from representing Misr Ins. Company in Talaat Moustafa Group’s (TMG) board, TMG said in an EGX disclosure (pdf).

#2- New investment minister resigns from Edita’s board: Newly-appointed Investment and Foreign Trade Minister Hassan El Khatib has submitted his resignation from Edita’s board and the associated committees, according to an EGX disclosure (pdf).