Commentary: Will China’s Central Bank Resume Government Bond Buying

A recent meeting of the joint working group between China’s Ministry of Finance and the People’s Bank of China (PBOC) renewed speculation about a potential restart of government bond trading by the central bank, a practice that has been paused for eight consecutive months. The meeting reignited hopes that the PBOC may intervene to support the bond market, but the likelihood and significance of such a move remain subjects of debate[para. 1].

The discussion on government bond trading began in April 2024. After a central directive called for enriching the monetary policy toolkit, the PBOC and the Ministry of Finance showed support for including government bond trading in open market operations. In August 2024, the PBOC bought a net 1 trillion yuan ($138 billion) worth of government bonds over five months, which led to yields on 10-year bonds falling below 1.6%, a historic low. This prompted the PBOC to pause the program in January 2025 to curb further declines[para. 2].

The main motivation for these operations was to fulfill a central policy mandate from the 2023 Central Financial Work Conference to “enrich the monetary policy toolbox” and explore unconventional tools, since conventional stimulus levers had already been extensively used. The PBOC’s Governor, Pan Gongsheng, emphasized the need to diversify monetary policy tools in line with the development of China’s financial markets[para. 3].

Government bond trading by the PBOC is meant to inject base money and manage liquidity, rather than to signal a shift in monetary stance or directly support government debt issuance. The PBOC places importance on differentiating its operations from quantitative easing (QE), underscoring that its actions are two-way (involving both purchases and sales) and not intended to monetize fiscal deficits[para. 4][para. 5][para. 6]. Legal restrictions also prevent the central bank from directly underwriting government debt, aiming to maintain boundaries between fiscal and monetary policy and to protect the yuan’s credibility[para. 6].

The PBOC also uses bond trading to shape the yield curve, such as through early operations that bought short-term bonds and sold long-term ones to maintain an upward-sloping curve[para. 7]. Compared to foreign experiences—like the U.S. and Japan’s extensive QE programs—China’s approach is more experimental and tailored to its own economic environment[para. 10].

Several unique features of China’s government bond trading have emerged: short-term bonds are preferred, operations are non-transparent to avoid misguiding the market, major banks’ trading patterns are watched as clues, and PBOC holdings of government bonds—which have declined by 590.8 billion yuan in 2025—suggest maturities are mainly short[para. 11][para. 12][para. 13][para. 14][para. 15].

Amid recent market weakness, expectations have grown for renewed central bank intervention. However, supply pressures are modest, with fourth-quarter net government bond supply expected to fall to 1.25 trillion yuan, and traditional liquidity tools like outright reverse repos (3.4 trillion yuan net in 2025) and the Medium-Term Lending Facility (461 billion yuan net) are still effective[para. 17][para. 19][para. 20]. The need for renewed bond purchases is thus not urgent, and any new purchases would likely be symbolic[para. 21].

For the bond market, central bank buying could temporarily shore up sentiment and steepen the yield curve but is unlikely to dictate the path of interest rates or reverse the trend, which is more influenced by macroeconomic fundamentals and the increased attractiveness of the equity market[para. 22]. Lasting stabilization of the bond market awaits broader economic shifts or a reversal in stock market dynamics[para. 22].