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China has reportedly asked big banks to help stabilize the country’s bond market as retail investors pull out in droves

Pedestrians walk by China's national flag in Beijing.Pedestrians in Beijing walk by the national flag of China.

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  • China has asked some of the country’s largest banks to help stabilize its bond market, Bloomberg reported. 
  • Bond prices have dropped as retail investors pull funds out of fixed-income products. 
  • Those investors are shifting to riskier assets as economic recovery prospects for China brighten. 

China has asked some of the country’s largest banks to buy bonds in an effort to stabilize the domestic debt market as retail investors pull funds and help fuel the biggest credit selloff in seven years, Bloomberg reported Wednesday. 

Regulators have asked banks to buy bonds via their proprietary trading desks, the report said, citing unnamed sources familiar with the matter. 

Bond prices have slid since early November as investors seeing signs of economic recovery have moved money out of fixed-income products and into riskier assets. Regulators are concerned that a downward spiral of fund redemptions and falling bond prices may stoke financial instability.

Growth prospects for the world’s second-largest economy have improved with Chinese cities lifting quarantine, testing, and other requirements tied to curbing COVID-19 infections. The changes have been taking place in the wake of mass domestic protests in late November against the country’s zero-COVID policy put in place after the outbreak began in 2019. 

The report said the impact of the debt market intervention had been limited so far, with bonds issued by local government financing vehicles leading declines on Wednesday in the onshore credit market and yields on some notes climbing 10 basis points. 

Selling pressure on the onshore bond market may reach 497 billion yuan ($72 billion) from December redemptions of wealth products and bond mutual funds, according to an extreme-scenario estimate from brokerage Shenwan Hongyuan Group Co.

Read the original article on Business Insider