SHANGHAI (Reuters)

China's central bank has injected 500 billion yuan (approximately $70.24 billion) into its banking system in October using a new reverse repurchase tool announced earlier this week.

The People's Bank of China (PBOC) stated that the repo operations aim to "keep banking system liquidity reasonably ample." The tenor of the repos for the month is six months.

The new tool, announced on Monday, supports the credit flow in the banking system ahead of the expiration of trillions of yuan in loans at the end of the year. It also provides the regulator with additional sources of bonds to sell in the future.

Analysts at China Securities noted, "While the central bank's current holdings of government bonds are sufficient for existing operations, it needs to establish additional channels for bond holdings. This will lay the groundwork for future bond sales and swap facility operations."

Unlike pledged repos commonly used in reverse repo operations, the title of the collateral in outright repo transactions is sold to the buyer. This gives the PBOC greater flexibility to meet liquidity needs through bond sales.

Additionally, the central bank reported a net purchase of 200 billion yuan in government bonds through open market operations in October. However, it did not specify the type of bonds purchased.

Until late September, China's bond market experienced a record rally as banks sought safer assets amid economic turmoil. The central bank has warned about inflated bond prices and sold long-dated bonds in August to stabilize the market.

Yields on ten-year and 30-year sovereign bonds fell by 1 basis point and 3 basis points, respectively.

Traders are eagerly anticipating next week's key leadership meeting, as any fiscal stimulus that falls short of expectations may drive yields lower.

($1 = 7.1180 Chinese yuan renminbi)