China tells some brokerages to conduct compliance checks on bond trading

The article from Reuters reports that China’s securities regulator, the China Securities Regulatory Commission (CSRC), has instructed certain domestic brokerages to conduct thorough compliance checks on their bond trading operations. This move is part of the authorities’ efforts to control the rapid buying of Chinese government bonds, which has intensified amid a sluggish economy affected by a prolonged property crisis.

Investors, including large banks, insurers, mutual funds, and rural financial institutions, have been flocking to the bond market, driven by declining stock market confidence and ongoing bank deposit rate cuts. The central bank has expressed concerns about the potential formation of a bond market bubble, warning against reckless buying behavior that could lead to a financial crisis similar to the one experienced by Silicon Valley Bank.

In response, regulators have implemented several measures to temper the bond market surge. These include capping the duration of new bond funds by major mutual fund companies, requiring financial institutions to report daily changes in their long-term treasury bond positions, and large-scale sales of Chinese government bonds by big state banks to drive up yields.

The compliance checks are also reportedly connected to investigations into four rural commercial banks suspected of bond market manipulation, reflecting the regulators’ broader crackdown on market misbehavior.