Recently, the People's Bank of China and other departments launched a new tool: the non-bank large-amount redemption swap facility in the bond market. As soon as the news came out, there was an interpretation on the Internet that "financial management must be a disguised form of capital preservation." This is actually a misunderstanding of this tool. In fact, the commitment to capital preservation in financial management is a thing of the past. The "New Asset Management Regulations" were promulgated in 2018, which clearly requires bank financial management to "break the rigid redemption", which means that it can no longer promise to "guarantee principal and return". So, what exactly does the “new tool” launched by the central bank this time do? What does it have to do with our financial products?
What is this tool?
As can be seen from the name, this tool is mainly aimed at: bond market, non-bank, and redemption. To simply understand, this tool is aimed at non-bank financial institutions such as bank financial management and public funds. The central bank has opened up an emergency lending channel, which is specially used in extreme situations where the bond market fluctuates significantly and products experience concentrated redemptions.
Why introduce new tools?
This has a lot to do with you and me. Nowadays, many people's money is used to buy bank financial management and public funds. These products are very large, with a scale of more than 70 trillion yuan. A large amount of the funds purchased by everyone are allocated in the bond market. It operates smoothly under normal circumstances, but once extreme market conditions occur, the risks cannot be ignored. For example, there was a wave of financial management redemptions at the end of 2022. At that time, many investors concentrated on redeeming products, and asset management institutions were forced to sell bonds. As a result, bond prices fell, and the net value of products fell further, which triggered more redemptions and fell into a vicious cycle of "redemption, selling, and decline."
The establishment of this tool is to avoid the spread of such a vicious circle of risks in the bond market.
Will the central bank lend money directly to funds and wealth management companies?
No, the central bank cannot directly extend loans to non-bank institutions and adopts an asset swap model. Simple understanding: Qualified asset management institutions borrow central bank bills from the central bank, use the bills to raise funds in the market, and obtain funds to undertake qualified assets that have been sold in panic, thereby interrupting the vicious cycle.
If the bond market falls, will the central bank intervene immediately?
Not really. It is an emergency tool in extreme scenarios, not a daily market adjustment method. It will only start when the bond market fluctuates violently and a large number of asset management institutions encounter redemption pressure at the same time, and a vicious cycle of redemption and selling is about to form. If the credit risk is caused by the institution's own investment mistakes and credit defaults, it is not within the scope of the central bank's tool rescue, and needs to be borne by the institution itself, dispelling the market's illusion that "someone will rescue you if something goes wrong."
The core principle of this policy is to save the market but not troubled institutions. The establishment of this tool is not to ensure that everyone’s financial management and funds only make profits but not losses. Its significance is to prevent systemic risks and maintain the smooth and orderly operation of the bond market when extreme market shocks arrive.
