Summary of the Conference Call on PBoC's Resumption of CGB Trading Industry Overview - The focus of the conference call is on the Chinese government bond (CGB) market and the implications of the People's Bank of China (PBoC) resuming CGB trading. Key Points and Arguments Resumption of CGB Trading - On October 27, 2025, Governor Pan Gongsheng announced the resumption of government bond trading by the PBoC, which was not fully anticipated given the stock market's current high levels [1][3] - Following the announcement, China swap rates rallied by 3-5 basis points (bp), with 5-30 year CGBs seeing a larger move of 5-6 bp [1] Liquidity Considerations - The PBoC's decision to resume trading is seen as a liquidity injection tool, especially with large maturities of Medium-term Lending Facility (MLF) and outright reverse repo (ORR) expected in the coming months, totaling RMB1.9 trillion in November and January 2026 [4] - If the PBoC does not resume CGB buying, it would effectively withdraw liquidity from the market, which could exacerbate economic growth headwinds [4] Fiscal Policies - The Ministry of Finance (MOF) has allowed local governments to access RMB500 billion of unused Local Government Bond (LGB) quota from previous years, leading to an expected increase in net government bond supply to an average of approximately RMB1.1 trillion in November and December [4][5] - This increase in supply may lead to more fiscal stimulus, potentially capping long-end yields if required [5] Market Impact - The resumption of CGB trading is viewed as a dovish signal, with expectations that the PBoC may follow up with additional easing measures, such as an Open Market Operation (OMO) rate cut [8] - Historical context shows that CGBs rallied 35-50 bp across the curve during the previous CGB purchase period from August to December 2024, influenced by monetary easing and regulatory guidance [8] Trade Recommendations - Analysts recommend a combination of pay 5-year Non-Deliverable Interest Rate Swaps (NDIRS) and a Mar-1s3s flattener, anticipating a positive market response to the Trump-Xi meeting and stable performance in equities and commodities [8] - If the PBoC resumes CGB purchases significantly, it may indicate that the market has not fully priced in the implications of such actions [8] Future Considerations - The market will be closely monitoring the PBoC's next moves, including potential OMO rate cuts and the outcomes of the Trump-Xi meeting, as well as updates on the 15th Five-Year Plan [9] Additional Important Information - The PBoC's liquidity management strategy is evolving, with a focus on using quantity tools rather than price tools for monetary easing, indicating a lower likelihood of immediate high-profile easing measures [8] - The timing of the resumption of CGB trading is critical, as it occurs during a rates sell-off, suggesting that the PBoC does not view current bond yields as excessively low [8]