Core Viewpoint - The People's Bank of China (PBOC) has resumed open market operations for government bonds, reflecting a flexible adjustment approach to monetary policy, responding to the need for policy coordination, and boosting market confidence, which is expected to improve the bond market environment and supplement long-term liquidity for banks [2][3]. Reasons for Resuming Bond Operations - The resumption is due to the stabilization of the bond market and the return of yields to a reasonable range, necessitating coordination with fiscal policy and the need to supplement bank liquidity. This move aims to stabilize market expectations and smooth out fluctuations in the funding environment, potentially replacing the need for a reserve requirement ratio (RRR) cut [3][5]. - The expected scale of bond purchases in Q4 2023 is between 0.7 trillion to 1 trillion yuan, primarily to offset the 1 trillion yuan of maturing bonds in 2024, with 660 billion yuan having matured by September 2025 [3][5]. Improvement in Bond Market Environment - The initial suspension of operations was due to a unilateral decline in government bond yields, which fell to 1.6% for 10-year bonds, leading to an imbalance in supply and demand and accumulated risks. Currently, yields have rebounded to above 1.8%, and the yield curve has widened, indicating a return to rational market behavior [5]. - The stock market has strengthened, with the Shanghai Composite Index surpassing 4000 points, creating redemption pressure on bond funds. The resumption of operations can interrupt the negative feedback loop of "redemption → bond market decline → more redemptions" [5]. Impact on the Market - In the short term, the resumption is expected to boost market sentiment, while the medium-term impact is likely to be neutral. Following the announcement, yields on various maturities of government bonds fell by 3-5 basis points, interpreted as a signal of policy easing [6][7]. - The bond purchase operations can inject long-term funds into the banking system, potentially reducing the probability of an RRR cut in the near term. However, if the scale of bond purchases is insufficient, an RRR cut may still be considered [7]. - The bond purchases directly support government bond issuance, lowering financing costs and enhancing the coordination between fiscal and monetary policies. This also strengthens the pricing benchmark role of the government bond yield curve, aiding financial institutions in improving their market-making capabilities [7]. - The resumption of government bond operations highlights the PBOC's flexible adjustment strategy, responding to policy coordination needs and instilling confidence in the market. The current bond market has improved safety margins, but the potential for trend opportunities will depend on the alignment of incremental policies and economic data [7].