People familiar with the matter said that the nation's biggest insurers were asked by Bloomberg to buy bonds being offloaded because retail customers pulled their cash from fixed-income investments.
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At a meeting on Wednesday, Chinese regulators told top insurers to backstop the market and buy bonds sold by wealth management units at banks to prevent further volatility, said the people who asked not to be named discussing internal deliberations. One person said that some banks were proposing to use their proprietary trading desks to scoop up bonds.
The guidance was handed down at a meeting attended by big banks, as Chinese traders and retail investors have been ditching fixed-income assets and investing in stocks on growing economic optimism as China rolls back its strict Covid Zero approach. The turmoil last month, which saw large withdrawals from bond-backed wealth management products, prompted regulators to ask banks to report on their liquidity situation.
Some insurance firms, with their investment products less vulnerable to short-term redemptions, have already heeded the call and purchased bonds on a positive market outlook even before the latest guidance, the people said. The biggest insurance firms include China Life Insurance Co. and Ping An Insurance Group Co. of China. The asset management arm of just those two manage a total of 8.74 trillion yuan $1.3 trillion according to their websites.
The China Banking and Insurance Regulatory Commission didn't respond to a request for a comment.
In an effort to improve transparency of risks and to instill more discipline in China's 29 trillion yuan wealth management market, authorities have embarked on a multi-year reform to make banks ditch a fixed-return model and move to mark-to-market pricing.
Large outflows and forced selling by money managers have been caused by the fact that investors have been used to steady, guaranteed returns for years.
On November 14, China's benchmark bond yield surged the most in six years, as signs that China is loosening its Covid Zero policies caused a rapid shift into stocks. Yields have been climbing since, before easing a bit on Wednesday. China's one-year government bond yield has risen to near the highest this year, at 2.25%, after a surge of more than 50 basis points since November.
The Chinese bond futures gained on Thursday, posting their biggest gain in two weeks. The 10-year note futures contracts rose by as much as 0.4% to 99.855, the most since Nov. 23. Yields on 10 year and one-year notes both declined.
According to an estimate from Everbright Securities, daily redemptions of largely bond-backed wealth management products could have peak at as much as 200 billion yuan.
Banks and asset managers have moved to limit redemptions. The Daily quota on what customers can redeem at 10,000 yuan is set by Bank of China Ltd., one of the four big state banks. Suyin Wealth Management and Bank of Guiyang Co. have capped real-time redemption on some products at 10,000 yuan per day, according to their latest mandates.
According to official data from the end of June, more than 95% of outstanding wealth management products sold by banks and asset managers are marked to market. Bonds account for about 68% of the total underlying assets.
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