〔Overnight Brief〕PBOC Debuts Mid-Month Overnight Repo and Signals Incremental Policy as China Bonds Rally

PBOC: New Mid-Month Overnight Repo and Incremental Policy Signals

The PBOC announced overnight reverse repo operations for Aug 14 and Aug 17-19, with daily volume capped at 600 billion yuan, marking the first mid-month use of the tool since its June 29 debut ^[1][2][3]. The move targets short-term liquidity strain from tax settlement, with Aug 17 the main tax deadline, and helps guide DR001 around the policy rate; the Aug 14 operation also precedes a 1-trillion-yuan six-month outright reverse repo maturity, with operational volume left flexible based on actual demand ^[3]. The Q2 monetary policy report said the central bank will comprehensively apply and timely adjust tools, keep liquidity ample and social financing conditions relatively loose, promptly plan pragmatic incremental policies, and strengthen counter-cyclical adjustment ^[1][2]. It also flagged lower-half investment growth space supported by 800 billion yuan of 'two major' project investment and 200 billion yuan equipment renewal funds ^[4], and said it would gradually increase overnight reverse repo frequency to improve policy-rate transmission ^[2].

China Rates and Credit: 10Y Yield Re-Breaks 1.7%

Bond bulls drove the 10-year CGB yield back below 1.7%, closing at 1.694%, while the 30-year yield fell to 2.160%, a yearly low ^[5]. Drivers include easing-policy expectations, balanced liquidity, and institutional buying, though the effective conditions for a sustained downtrend still need verification ^[5]. In credit markets, commercial banks have issued 62 'second-tier capital and perpetual bonds' totaling 1.281728 trillion yuan this year as of Aug 12, up 22.31% from the same period last year; full-year issuance is seen at 1.5-2 trillion yuan, with supply peaking in Q2 and tapering through H2 ^[6].

Fiscal and Spending Signals

Official media highlight support for a '5-year, 10 trillion yuan consumption increment' ^[7][8]. The Ministry of Civil Affairs reported first-half national civil affairs spending of 243.6 billion yuan, covering urban and rural subsistence allowances, extreme-poverty support, and disability subsidies ^[9]. The Ministry of Finance issued 15 billion yuan in yuan-denominated treasury bonds in Hong Kong ^[10]. Separately, A-share state-controlled listed companies have disclosed 1,008 M&A plans year-to-date through Aug 12, with 256 completed ^[11].

Overnight Global Markets: Muted CPI, Record US Deficit

US July CPI rose 3.4% y/y and core CPI 2.5%, both in line with forecasts, cooling September Fed hike bets from about 50% to 40% ^[12][13][2]. The S&P 500 gained 0.26%, Nasdaq 0.54%, and Dow fell 0.04%; gold rose over 1% to $4,412/oz, silver gained 1.02% to $65.322/oz, and copper fell 0.37% ^[14]. The US 10-year Treasury auction drew a 4.683% high yield, the highest since 2007 ^[12][13], and July's budget deficit hit a record $432 billion, with FY26-to-date interest costs surpassing $1 trillion ^[15]. FTSE China A50 futures rose 0.39% overnight ^[16]. AI equities are splitting: optical networking and data centers led, while memory and power themes lagged ^[17].