China’s PBOC Establishes Bond Funding Tool for Asset Managers

The People’s Bank of China (PBOC) has established a funding facility for systemically influential bank wealth-management subsidiaries and public-fund managers facing group liquidity risk during systemic bond-market pressure.

The participants’ corresponding parent banks or parent securities companies can also use the facility. Eligible borrowers can borrow central bank bills from the PBOC and use them to raise cash through market repurchase agreements, commonly called repos.

The funds can finance purchases of eligible bonds or units in public funds facing redemptions at the borrowing institution or one of its asset-management subsidiaries. The acquired assets can then be pledged to the PBOC.

The facility is limited to the combined stress scenario and purchases associated with redemptions. The move follows the PBOC’s earlier plan for a joint liquidity tool for nonbank redemptions.