China's Bond Market on the Edge

Central Bank Intervenes to Stem Plunge in Yields

Amid Warnings of Destabilizing Bubble Risks

China's bond market is on the cusp of a potential crisis as the central bank steps in with heavy-handed intervention to halt a freefall in yields. The move comes as the world's second-largest bond market has been rattled by a confluence of factors, including investor flight to safety, a struggling economy, and deflationary pressures.

The People's Bank of China (PBOC) has repeatedly issued warnings about the dangers of a destabilizing bubble in the bond market. As investors pile into government bonds, seeking refuge from economic uncertainty, yields have tumbled to record lows. This has raised concerns that the market is becoming overheated and vulnerable to a sharp correction.

Despite these warnings, the PBOC has been forced to intervene in recent days to prevent a further decline in yields. The central bank has purchased bonds in record amounts and raised the cost of short-term borrowing. However, these measures have only had a limited impact so far, and analysts warn that the bond market could remain volatile in the coming weeks.