China's central bank injected a net 348 billion yuan of liquidity through overnight reverse repo operations on Friday, August 14, marking the first time it has used this tool mid-month to meet funding demand from tax payments. The PBOC conducted overnight reverse repos worth 349 billion yuan, or about 51.7 billion US dollars, and offset 1 billion yuan of maturing seven-day reverse repos, resulting in a net injection of 348 billion yuan. Previously, the PBOC had used overnight reverse repos only near the end of June and July, after Governor Pan Gongsheng announced an expansion of short-term liquidity management tools at the Lujiazui Forum in June. Frances Cheung, head of foreign exchange and rates strategy at Oversea-Chinese Banking Corp., said the amount was not particularly large and the PBOC's stance had not changed significantly, with the focus on reducing volatility rather than injecting excess funds. The PBOC also planned to conduct outright reverse repos worth 1 trillion yuan on the same day, but will fully offset maturing contracts this week, so there will be no additional net injection. The yield on China's 10-year government bonds fell about 1 basis point to 1.68 percent, the lowest since July 2025, reflecting expectations that liquidity will remain accommodative.
PBOC's net liquidity injection and accommodative stance push bond yields lower, so the 10Y yield falls.
