China Plans Liquidity Backstop to Prevent Bond Market Fire Sales

China’s central bank will establish a liquidity facility to help nonbank financial institutions manage large-scale redemptions, aiming to reduce the risk of forced asset sales that could destabilize the bond market.

The mechanism will add to the People’s Bank of China’s (PBOC) macroprudential toolkit and is intended to prevent a cycle in which investor withdrawals trigger asset sales, deepening liquidity stress and prompting further redemptions.