As warnings of an economic recession grow louder due to a sharp drop in government bond yields, Chinese authorities have imposed fines on three institutions for misconduct related to bond trading.
On the 31st, the People's Bank of China, the country's central bank, announced that it had sanctioned three institutions?Shanghai East Asia Futures Co., Ltd., Tianjin Xintang Currency Brokerage Co., Ltd., and Hunan Xipu Rural Commercial Bank?and 13 employees for violating bond market management regulations and failing to fulfill customer identification obligations.
The People's Bank of China imposed warnings and fines totaling 68.81 million yuan (approximately 13.85 billion KRW) on these institutions and employees, and confiscated illegal profits amounting to 9 million yuan (approximately 1.8 billion KRW) that they had earned.
These three institutions transferred profits through methods such as lending bond accounts. They were reported to have repeatedly violated interbank bond market regulations by evading supervision and internal control rules.
The China Securities Journal cited a representative from the People's Bank of China, stating that during recent bond market monitoring, authorities discovered abnormal trading activities by some participating institutions and conducted investigations that led to the detection of these violations.
This sanction is the first action taken by the authorities since they issued a warning in May regarding the decline in government bond yields.
On the 18th, the People's Bank of China also convened some financial institutions that engaged in aggressive trading in the bond market, warning that it would strictly crack down and punish illegal activities such as account lending, market price manipulation, profit transfers, and lack of internal controls, applying a zero-tolerance policy toward bond market violations.
In China, as skepticism about economic recovery spreads, demand for safe assets like bonds has surged, causing government bond prices to soar (and yields to fall sharply).
The 10-year government bond yield, which was around 2.56% at the beginning of the year, steadily declined, breaking the psychological support level of 2% earlier this month, and then fell further to a record low of 1.6981% last week.
The 30-year government bond yield also dropped from 2.85% at the start of the year to 2.16% earlier this month, and further fell to 1.955% the day before. The 1-year government bond yield fell below 1% on the 20th for the first time since the 2009 financial crisis.
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