Central Bank Resumes Bond Trading and Launches ¥700 Billion Outright Reverse Repo

On November 4, the People’s Bank of China (the central bank) announced it will conduct a ¥700 billion outright reverse repo operation on November 5 using a fixed‑quantity, rate‑tender and multi‑price allotment method, with a maturity of three months (91 days). Because ¥700 billion of three‑month reverse repos are set to mature this month, the operation effectively rolls over the maturing amount on an equal basis.

Although the month sees a total of ¥1 trillion in outright reverse repos maturing, the central bank has, since June, consistently executed two outright reverse repo operations each month with differing tenors. Market participants generally expect an additional six‑month outright reverse repo in November and anticipate that outright reverse repos will continue to result in net liquidity injection for the month.

The central bank’s liquidity report for October 2025 shows a ¥20 billion injection via open‑market treasury bond trading operations, indicating the resumption of such bond purchases. While the injected amount was modest, market observers emphasized the significance of the policy signal. Liu Yu, Chief Economist at Huaxi Securities, noted that the benefit to the bond market lies not only in looser funding conditions but also in a reversal of market expectations.

Since introducing outright reverse repos in October last year, the central bank has used them to plug medium‑ and longer‑term funding gaps. To enhance the timeliness of disclosures, the bank began issuing pre‑operation tender notices in June, specifying operation dates and volumes to anchor market expectations.

Recent policy and fiscal deployments, including a rapid rollout of ¥500 billion in new policy financial instruments and the Ministry of Finance’s allocation of a ¥500 billion local government debt rollover quota, are expected to exert pressure on bank system liquidity in November. Wang Qing, Chief Macro Analyst at Dagong Global Credit Rating, told Securities Times that injecting medium‑term liquidity through outright reverse repos helps keep funding conditions relatively ample and stable, and that the move signals a continuation of a supportive monetary stance.

Outright reverse repos, treasury bond trading operations and the Medium‑Term Lending Facility complement the central bank’s daily seven‑day reverse repo operations conducted in response to primary dealer demand; they provide supplementary medium‑term liquidity. By October, the central bank had consecutively increased outright reverse repo volumes for five months and expanded MLF operations for eight months. In October the bank also resumed treasury bond trading with a ¥20 billion injection.

Given the partial substitutability among outright reverse repos, MLF and bond trading, the immediate need to inject liquidity via bond purchases is limited. Wang Qing expects the central bank to continue employing outright reverse repos and MLF together to supply medium‑term liquidity to markets.

The November 4 notice confirms that the central bank resumed treasury bond trading in October with a ¥20 billion injection after an eight‑month pause. Earlier this year, citing significant supply‑demand imbalances and accumulated market risks, the central bank announced a temporary suspension of bond purchases on January 10. By October, the bond market’s supply‑demand dynamics had adjusted and the 10‑year government bond yield stabilized around 1.8%, a notable improvement relative to the start of the year.

Central bank governor Pan Gongsheng previewed the resumption of bond trading at the 2025 Financial Street Forum, observing that the bond market was generally operating well. In the second half of the year the market evolved into a “strong equities, weak bonds” configuration with prevailing bearish sentiment. Zhang Xu, Chief Fixed Income Analyst at Everbright Securities, told Securities Times that October was characterized by “bearish sentiment,” such that the central bank’s net bond purchases exerted only limited downward pressure on yields.

Although the October bond trading injection was small, market participants prioritized the policy signal over the absolute amount. Liu Yu reiterated that the positive effect for the bond market encompasses both liquidity easing and an expectation shift.

Treasury bond trading is primarily a tool for base money provision and liquidity management, but it inevitably affects sovereign yield trajectories. Since Pan’s October 27 preview of resumed bond trading, long‑term yields have edged lower. The 10‑year government bond yield moved from 1.8423% on that date to 1.7984% on November 4. Yang Yewei, Chief Fixed Income Analyst at Guosheng Securities, observed that the central bank’s signaling helps restore market sentiment and supports declines in long‑end yields.

Yang added that bond purchases made by the central bank last year are maturing this year, producing cash inflows and reducing the stock of holdings; to maintain the scale of that tool, resuming purchases is necessary. He estimates that stabilizing the central bank’s bond holdings this year would require net purchases in the range of ¥700 billion to ¥1 trillion.