SHANGHAI (Reuters) – China’s interbank bond market trading accounts must not be borrowed or transferred, as that could lead to a rise in non-compliant transactions, distort market prices and increase credit risks, a central bank-affiliated newspaper said.
The article in the Financial News on Friday came after Chinese regulators this week started probing small financial institutions over their trading behaviours as the People’s Bank of China (PBOC) stepped up efforts to cool a sizzling rally in the treasury bond market.
The National Association of Financial Market Institutional Investors (NAFMII), an industry body supervised by the PBOC, said late on Wednesday that it would investigate four rural commercial banks over suspected bond market manipulation.
NAFMII said on Thursday it found misbehaviour in bond trading by some small financial institutions involving borrowed accounts and had reported some serious rule-breakers to the central bank for punishment.
Borrowing, or allowing the use of trading accounts by non-owners in return for a rental fee, “often involves non-compliant money flows and potential transfer of interest,” the Financial News said.
It would further distort market prices and could also increase credit risks because account owners cannot control transactions, said the newspaper, seen as a mouthpiece for the central bank.
NAFMII in April probed some small financial institutions over trading misbehaviours such as account borrowing, according to the newspaper.
Staff of some financial institutions colluded with external players and conducted illegal activities based on expectations that treasury yields will drop, the article said.
The central bank has repeatedly warned against reckless buying in a bond rally driven by a dismal economic outlook, worried about a potential bubble that could end up in a Silicon Valley Bank-style crisis.
The PBOC also said it aims to maintain an upward sloping yield curve to help provide positive incentives for investment.
(Reporting by Shanghai and Beijing newsroom; Editing by Jamie Freed)
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