China's central bank is determined to maintain a normal upward-sloping yield curve and correct bond-market risks, the bank-backed Financial News reported late on Friday, citing industry sources and experts.
The report is the latest warning to the country's bond market after the People's Bank of China (PBOC) sounded concerns and introduced plans to sell treasury bonds to cool a bond rally.
"The bond market won't rise forever, and there is a growing risk of a reversal in the current market," the newspaper quoted an unnamed industry source as saying.
The official media added that some rural commercial banks, which have higher risks than their bigger peers, have an overweight position on medium- and long-term treasury bonds.
Extending investment durations enables financial institutions to pursue higher returns. But sharp rises in interest rates against the backdrop of such a maturity mismatch will cause losses.
"Bearing large losses (from bond investments) will hit the bottom line of capital and amplify their interest-rate risks and credit risks," the industry source said.
"The borrowing and selling of treasury bonds will help to balance market supply and demand and prevent risks in the bond market," the official newspaper said, citing an expert.
"There is no need for the market to worry about the impact of the sale of treasury bonds on liquidity. The central bank's stance of maintaining reasonably ample liquidity conditions has not changed."
