China's Central Bank Plans New Indicators to Curb Banks' Long-Term Bond Holdings
RegulationMacro
The People's Bank of China is moving forward with a plan to introduce new indicators into its macro-prudential assessment framework to curb excessive bank holdings of long-term bonds and funds that could heighten investment risk, according to people familiar with the matter. The plan also includes measures to track divergences between money market rates and bond yields, the sources said. According to the sources, specific thresholds for these indicators are still under discussion with the industry and have not yet been finalized. China's bond market has bucked a global selloff this year and is on an upward trend, with weak economic data fueling expectations for further policy support. Market participants say some smaller banks may have exceeded duration limits on bond investments or caps on fund investments, and could be forced to adjust their bond portfolios. The macro-prudential assessment framework, formally introduced in 2016, has become a key element of China's "two-pillar" regulatory approach that combines monetary policy with macro-prudential policy.
