After the Spring Festival holiday, the tight funding situation continues to ferment. The 7-day repurchase rate remains at a high level of 2.45%. As a result, both the China Government Bonds (CGB) and the Non-Deliverable Interest Rate Swap (NDIRS) curves have shown a bear flattening trend. However, after the market fluctuations, the central bank has &#34;unusually&#34; not taken measures to stabilize funding volatility.
Barclays stated, this may be an intentional suppression of high-leverage investors' large allocations to long-term government bonds, to avoid a situation similar to Silicon Valley Bank in China.
Analysts believe that although yields will continue to rise in the short term and the curve will continue to flatten, from a mid-term perspective, the fundamentals point to a decline in mid-term yields, and the yield curve will restore to a bull steep.
<h2>The &#34;Unusual&#34; Behind the Central Bank's Actions</h2>
The team led by Barclays analyst Lemon Zhang stated in a report on February 25 that both the China Government Bonds (CGB) and the interest rate swap (NDIRS) curves are showing a bear market flattening trend. More concerning is that even after the Spring Festival holiday, the tight funding situation has not eased but has intensified.
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Typically, due to increased cash demand around the Spring Festival, the funding situation experiences seasonal tightening. However, what is unusual this year is that the central bank did not inject more liquidity through open market operations as expected after the holiday, but instead paused the purchase of short-term bonds.
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The central bank's &#34;unusual&#34; cautious attitude after the holiday has sparked widespread speculation in the market.
Barclays believes that the central bank has not taken active measures to stabilize funding volatility. This may be an intentional suppression of high-leverage investors' large allocations to long-term government bonds, as the central bank has repeatedly stated in quarterly monetary reports, public speeches, and media interviews that it aims to prevent a situation similar to Silicon Valley Bank in China.
Analysts noted that the central bank announced on January 10 to &#34;suspend the purchase of government bonds,&#34; which conveys discomfort with the rapid decline in interest rates in December last year and the urgent need to curb RMB fluctuations against the backdrop of widening interest rate differentials between China and the U.S. The lack of the central bank's average monthly purchase of 200 billion yuan in short-term government bonds has contributed to the flattening of the government bond curve since the beginning of the year.
At the same time, the improvement in risk appetite in the Chinese stock market has also led to a rotation of funds from the bond market to the stock market.
Strong box office revenues during the Spring Festival, news of government support for real estate developers to address a funding gap of 50 billion yuan, and breakthroughs in artificial intelligence by DeepSeek have all boosted market sentiment.
<h2>Fundamentals Still Point to a Decline in Mid-Term Yields</h2>
Despite facing adjustment pressure in the short term, Barclays believes that the fundamentals point to a decline in mid-term yields and a bull steep yield curve.
As the National People's Congress meeting in March approaches, the central bank is expected to become more accommodative, especially considering seasonal factors and a large amount of maturing government bonds. Historical data shows that during the National People's Congress meeting in March, the 7-day repurchase rate typically declines
Barclays believes that while investors remain vigilant amid short-term fluctuations, they should also closely monitor the policy signals that may arise from the National People's Congress meeting in March, as the national GDP growth target will provide important reference for asset price trends.

Barclays believes that the central bank's "abnormal" failure to take measures to stabilize capital fluctuations after the holiday may be an intentional effort to suppress the large allocation of long-term government bonds by highly leveraged investors, in order to avoid a situation similar to that of Silicon Valley Bank in China. Although yields will continue to rise in the short term and the curve will continue to flatten, from a medium-term perspective, the fundamentals point to a decline in medium-term yields, and the yield curve will return to a bull steepening

- After the Spring Festival, the liquidity tightness in China continues, with the 7-day repo rate remaining high at 2.45%, leading to a bear flattening of the CGB and NDIRS curves.  
- Barclays analysts suggest that the central bank's unusual restraint in not injecting liquidity post-holiday may aim to curb high-leverage investors' allocations to long-term bonds, preventing a crisis similar to Silicon Valley Bank.  
- Despite short-term yield pressures, fundamentals indicate a downward trend in mid-term yields, with expectations of increased central bank easing as the National People's Congress approaches.