The People's Bank of China (PBOC) recently held confidential talks with select financial institutions involved in the recent debt issuance market, urging them to exercise caution on interest rate risks, enhance research capabilities, strengthen the stability and legitimacy of their investment strategies.
Following these talks, banking financial subsidiaries and insurance asset management companies have taken proactive measures to minimize long-term bond market exposure. In the short term, they have discontinued delegating long-term bond trading to brokerages and have instead opted for direct trading by their in-house bond traders, bolstering internal oversight.
According to an insurance asset management company's bond trader, their team has been reviewing internal assets' duration to reflect the recent PBOC's warning. The intention is to accumulate 1-3 year bonds and gradually decrease the current duration of the holdings. Additionally, they will invest in long-term high-rated local government debts in exchange for long-term central government debts, aiming to meet the target annual rate of return for insurance products.