BEIJING, July 2 -- The People's Bank of China (PBOC), the country's central bank, announced plans to conduct treasury bond borrowing operations with primary dealers in the open market, a move analysts believe will increase treasury bond yields and diversify China's monetary policy toolkit.

The decision came following a decline in China's long-term treasury bond yields. Recently, yields on 30-year treasury bonds fell below 2.5 percent, and 10-year yields dropped below 2.3 percent, attracting significant market attention.

According to Wang Qing, an analyst at Golden Credit Rating, after borrowing treasury bonds from primary dealers, the PBOC can sell these bonds in the secondary market, thereby reducing bond prices and driving up related yields.

China's central bank has repeatedly warned about the risk of low yields on medium to long-term treasury bonds since April.

Pan Gongsheng, governor of the PBOC, last month emphasized the importance of maintaining a normal upward-sloping yield curve to preserve market investment incentives.

Analysts lauded the timing of the announcement, noting that it aims to mitigate potential disruptions linked to end-of-quarter and mid-year periods, thereby ensuring market stability. Meanwhile, by providing notice in advance, the PBOC also aimed to reduce speculative activities in the treasury bond market.

Analysts predict the central bank will primarily borrow medium to long-term government bonds with maturities of 10 years or more. The borrowing scale and the timing will be determined based on the bond market conditions.

Over the past decade, China has diversified its methods for managing liquidity, developing mechanisms such as open market operations and the medium-term lending facility.

The central bank is working with the Ministry of Finance to include treasury bond trading in its open market operations, Pan said last month, noting that the process will be gradual.

Analysts have clarified that these trading operations do not indicate a move towards quantitative easing.

According to Pan, incorporating treasury bond trading into the monetary policy toolkit aims to serve as a channel to increase the monetary base and manage liquidity, and this approach involves both buying and selling bonds.