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CGB yields remain range-bound this week, with the 2Y and 10Y hovering around 1.40% and 1.80% respectively. The PBoC has injected CNY966bn into the system via open-market operations over the past 7 days. Rather than a signal of a shift toward more aggressive easing, this appears largely pre-emptive to sooth potential liquidity squeeze ahead of the Lunar New Year. In fact, front-end CNY rates, including R007 and DR007, have rebounded by ~10bps over the past week to around the 1.60% level. In our view, the central bank is maintaining a cautiously accommodative monetary policy stance amid heightening geopolitical tensions. This stance is being reflected in a lower USD/CNY fixing, which has breached the psychological 7.0 level since last Thursday. Meanwhile, the PBoC has been relying more on structural tools to support targeted sectors rather than cutting the Loan Prime Rate or the 7-Day Reverse Repo Rate.
PBoC is expected to resume broader easing toward 2Q. Beyond rate cuts, the PBoC is likely to step up bond purchases. Notably, the PBoC’s share of CGB holdings has declined from 8.5% in 2024 to 5.5% in 2025, while its holdings as a percentage of GDP have retreated from 2.1% to 1.6%. This compares with a peak of 6.0% during the GFC. The anti-involution agenda continues to warrant further easing until both CPI and PPI return to positive. Eliminating excessive investment is set to support prices and corporate profits, but this is also translating into weaker credit demand and lower CNY rates. 
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