China's Central Bank Warns on Bond Trading

The People's Bank of China (PBOC) clarified that it will not ban legitimate trading in government bonds, despite expressing concerns over excessive buying among smaller financial institutions. In recent weeks, trading volume for long-dated government bonds has plummeted by 90%, attributed to Beijing's crackdown on speculation and illegal trading activities. The Chinese government is attempting to manage a bond rally that has driven borrowing costs to record lows, which might otherwise benefit the struggling economy. However, officials fear that persistently low yields could generate financial risks, prompting them to investigate and punish speculative trading. Economic indicators show continued downturns, including rising unemployment and falling property prices, leading to diminished consumer spending. These measures reflect a balancing act for regulators trying to stabilize the bond market while avoiding further economic deterioration.