China’s economy is so flush with funds that the central bank chose not to make any short-term cash injections into the financial market for the first time since 2020.

The People’s Bank of China said it refrained from pumping cash into the financial system via its open-market operations because “the overall amount of liquidity is reasonable and abundant.” The decision was made based on the demand from primary dealers in the money market, it said in a statement.

Signs of abundant liquidity underscore the challenge the PBOC faces as it seeks to damp down a bond rally that’s pushed yields to record lows amid a global rush for haven assets. In recent indicators of growing concern from the authorities, a branch of the central bank asked rural lenders to be more mindful of the risks associated with their bond holdings, and state banks were seen selling government bonds to limit yield declines this week.

An indicator of short-term funding costs in the money market fell to the lowest level since January this week, a further sign of a plentiful cash supply. China’s benchmark 10-year yield slid to a record 2.08% on Monday, down from 2.56% at the end of last year.

“In line with the global movement and concerns about local leverage, today’s no-injection through OMO appears to be aimed at discouraging excessive bet on the China rates rally,” said Kiyong Seong, lead Asia macro strategist at Societe Generale HK Branch.

The PBOC drained a net 252 billion yuan (US$35 billion or RM156.6 billion) of short-term cash from the banking system on Wednesday. In late July, it lowered a number of key interest rates to bolster long-term liquidity to help support the economy.

“The central bank is trying to tighten liquidity within a reasonable range to restrict leverage and rein in the government bond bull run,” said Zhaopeng Xing, a senior China strategist at ANZ Bank China. “The current liquidity is ample. There’s no need to further add cash into the market.”

  - Bloomberg