Reporter Han Yu
Recently, there has been a lot of discussion about the People's Bank of China (hereinafter referred to as "the central bank") or "the next market" buying and selling government bonds. Since there are few cases of the central bank directly buying government bonds in history, the market has different interpretations of this, and some voices have also compared it to the Chinese version of quantitative easing (QE). However, the signals released by the central bank and the Ministry of Finance recently have clarified the possibility of the central bank of China to carry out treasury bond trading in the secondary market, as well as the difference from QE.
So why does the Central Bank carry out treasury bond trading in the secondary market? Why is this operation different from QE and monetization of fiscal deficit? What is the expected impact? The reporter of Securities Daily interviewed many experts in the industry to interpret the above issues.
The central bank purchases government bonds in the secondary market
There is "law" and "need"
The head of the relevant department of the central bank said recently that the central bank's treasury bond trading in the secondary market can be used as a liquidity management method and monetary policy tool reserve.
The theoretical learning center group of the Party Leadership Group of the Ministry of Finance also proposed in the People's Daily that "to deepen the structural reform of the financial supply side, we must strengthen the coordination and cooperation between finance and financial policies", It mentioned that "in terms of the meso mechanism, we should strengthen the coordination between fiscal and monetary policies and financial reform, improve the basic money supply and monetary supply regulation mechanism, support the gradual increase of treasury bond trading in the open market operation of the central bank, and enrich the monetary policy toolbox".
Both the central bank and the Ministry of Finance have made statements, which is also understood by the market as the possibility of gradually increasing the purchase and sale of government bonds in the open market operation of the central bank is increasing. It is worth noting that from the perspective of China's current legal system, the central bank also has laws to abide by when buying and selling government bonds.
Article 29 of the Law of the People's Republic of China on the People's Bank of China stipulates that "the People's Bank of China shall not overdraft the government finance, nor directly subscribe for or underwrite national bonds and other government bonds". At the same time, Article 23 proposes that the People's Bank of China may use the following monetary policy instruments to implement monetary policies, including "buying and selling national bonds, other government bonds, financial bonds and foreign exchange in the open market".
Minsheng Bank Wen Bin, the chief economist, said in an interview with the Securities Daily that from the perspective of legal system arrangements, buying and selling government bonds can obviously become a necessary supplement to open market operations, and the current system is also allowed. He analyzed that in the spot bond transaction, the aforementioned law stipulates that the People's Bank of China may not participate in the treasury bond transaction in the primary market, which means that the central bank cannot directly purchase the treasury bond in the primary market, that is, the Ministry of Finance and the central bank directly conduct the opposite hand transaction (direct buyout), but can buy it through the secondary open market.
"It is legally feasible for the central bank to implement monetary policy by buying and selling government bonds in the secondary market." citic securities Mingming, the chief economist, also told the reporter of Securities Daily.
While there is "law", the interviewed experts also believe that it is not only possible, but also necessary, to gradually increase the purchase and sale of government bonds in the central bank's open market operation.
Mingming believes that this year China will definitely issue trillions of yuan of super long term special bonds, but the expansion of the central government will have some market impact. On the one hand, the increase in the issuance of government bonds is bound to raise the interest rate of government bonds and increase the pressure on the central government to pay interest; On the other hand, government debt financing will squeeze private sector financing space, and corporate bond issuance space may be limited. If the central bank chooses to purchase bonds in the secondary market, on the one hand, it alleviates the problems such as the rising interest rate caused by the issuance of a large number of government bonds and squeezing the issuance space of credit bonds, on the other hand, it also releases liquidity in a wide range through the form of fiscal expenditure, which supports the real economy.
Everbright Securities According to the published research report, the central bank purchases and sells government bonds in the open market mainly for the purpose of handling basic currency, maintaining a reasonable and sufficient liquidity of the banking system, and achieving the intermediary goal of monetary policy. The central bank also purchases and sells government bonds in the open market to supply and absorb long-term liquidity to the banking system.
"Compared with lending facilities and other tools, the liquidity of buying and selling treasury bonds has certain advantages." Bank of China Liang Si, a researcher of the Research Institute, told the reporter of Securities Daily that on the one hand, this can improve the flexibility of capital investment. The central bank can decide whether to buy and sell cash bonds according to the needs of economic development and market operation, and then flexibly adjust the amount of market liquidity, directly affecting the operation of the money market and bond market.
On the other hand, it can improve the transmission efficiency of monetary policy. As the asset with the highest credit rating, the yield of national debt is the anchor of the financial market and has an important impact on the pricing of various financial products such as bonds, deposits and funds. By buying and selling treasury bonds, the central bank can directly affect the change of treasury bond yield curve, then transmit it to all financial products, and finally act on the real economy, thus greatly improving the transmission efficiency of monetary policy.
Not QE
Not monetization of fiscal deficit
In recent years, the market has repeatedly reported that China is going to launch quantitative easing policy, that is, the Chinese version of "QE", but it was finally "falsified".
The head of relevant central bank departments mentioned above also that "in the future, the central bank's treasury bond operations will also be two-way". "Some central banks in developed economies are forced to buy treasury bonds unilaterally on a large scale to achieve monetary policy goals when conventional monetary policy tools are exhausted, while China insists on implementing normal monetary policies. The People's Bank of China purchases and sells treasury bonds and quantitative easing (QE) of these central banks The operation is quite different ".
Feng Lin, director of the research and development department of Oriental Jincheng, told the reporter of Securities Daily that the central bank's national debt trading does not mean QE, because in the future the central bank's national debt operation will also be two-way, that is, the central bank can not only buy bonds to release liquidity, but also sell bonds to guide the market interest rate to rise.
Looking again at the so-called "QE", Liang Si said that, in fact, there are strict preconditions for implementing QE, that is, the policy interest rate is 0% and the economy and society fall into the "liquidity trap". One of the important reasons for the adoption of QE in European and American developed countries is the failure of the interest rate transmission mechanism, which means that reducing the interest rate to 0% will not effectively drive consumption and investment. The whole society is trapped in the "liquidity trap" proposed by Keynes. At this time, the government needs to make up for the demand gap due to insufficient effective demand, The central bank provides financial support for fiscal expenditure by purchasing a large number of government bonds.
Liang Si said: "From the current situation, there is no prerequisite and necessity for China to implement QE." The aforementioned Everbright Securities Research Newspaper also believes that it is obviously wrong to regard China's central bank's trading of government bonds in the open market as QE. QE is a forced action after the conventional monetary policy space is exhausted (for example: zero interest rate). At present, there is still much room for China's conventional monetary policy, and there is no need to implement the so-called quantitative easing policy. For example, the current OMO (open market operation) and MLF (medium-term lending facility) interest rates in China are 1.8% and 2.5% respectively, far from the zero interest rate level.
In addition, gradually increasing the purchase and sale of government bonds in the open market operation of the central bank is not the monetization of fiscal deficits.
Wen Bin said that the monetization of fiscal deficit is mainly based on the modern monetary theory (MMT), which mainly advocates the creation of money through fiscal expansion to help the economy achieve the goal of full employment. Therefore, fiscal deficit should not become a hard constraint on government spending, but can be supported by issuing currency (mostly reflected in the purchase of national debt by the central bank). The main hard constraint on fiscal expenditure is inflation. However, the academic community's criticism of MMT is that if the central bank is not prudent in the intensity and duration of bond purchase, it is likely to lead to "flooding", which will lead to inflation. At the same time, excessive emphasis on big finance also has the risk of resource mismatch.
"We can't simply determine whether it is QE or even MMT by whether we buy government bonds or not." Wen Bin said that buying and selling government bonds is essentially just a tool of the central bank's balance sheet. The central bank will choose appropriate operation methods to achieve the goal of monetary policy according to the specific conditions of the macro-economy and financial market. The behavior of the central bank in operating treasury bonds is not a direct reflection of QE or MMT, but a part of its monetary policy tools, which aims to maintain market liquidity and financial stability.
However, looking into the future, although the possibility of the central bank's "next" national debt trading is increasing, the industry has no more consistent expectation of when it will "land".
Feng Lin judged that in view of the central bank's concern about the trend of long-term treasury bond yield, And the above-mentioned head of the relevant department of the central bank believes that "the underlying logic of the current continuous decline in the yield of long-term government bonds is the lack of 'safe assets' in the market. With the issuance of ultra long term special government bonds in the future, the' asset shortage 'situation will ease, and the yield of long-term government bonds will also rise". The possibility of the central bank buying bonds next in the short term is very small, This means that the probability rate of ultra long term special treasury bonds to be issued will be issued in a market-oriented manner, rather than being purchased by the central bank in the secondary market after targeted issuance.
Guolian Securities The research paper also believes that, from the perspective of liquidity, the central bank still has enough room to cut interest rates and reserve ratio, and it is not necessary to provide liquidity by purchasing government bonds in the short term. If the central bank purchases treasury bonds in the future, it is expected to give priority to expanding the pledge transaction of Chinese bonds in repurchase transactions; In the medium and long term, it is also possible to buy out the traded national debt by means of targeted issuance. The scale of delivery will match the normal demand of the market for money. It is a supplement to the normal monetary policy tools of the central bank, and is not a quantitative easing type of massive purchase.
It is clearly believed that if the central bank purchases government bonds, it may be mainly to maintain the smooth operation of the capital surface, and may coincide with the time period when the Ministry of Finance issues ultra long term special government bonds, so as to realize the release of liquidity in both monetary and financial channels, and alleviate the impact of the peak supply of government bonds on the inter-bank liquidity market.
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