In recent weeks, China's bond market saw a significant rally as investors sought safer assets amid ongoing economic challenges.

As part of its open-market operations, the People's Bank of China (PBOC) purchased 200 billion yuan (approximately $28.52 billion) in government bonds during September.

However, the PBOC did not specify whether these purchases consisted of short-term or long-dated bonds, a departure from its usual practice of providing such details.

The central bank stated that its bond purchases are intended to strengthen counter-cyclical monetary policy and ensure sufficient liquidity in the banking system.

Recent yield changes suggest the PBOC may shift its strategy by starting to purchase long-term bonds, indicating a potential change in its approach.

This shift is reflected in the increase of ten-year and 30-year bond yields by 13 and 22 basis points, respectively, resulting in a steeper yield curve.

The reversal in bond yields followed the announcement of a significant stimulus package aimed at revitalizing the economy, which had previously driven yields to record lows.

Analysts believe the PBOC's strategy aims to support lower short-term yields to foster economic growth while promoting higher long-term yields to stimulate investment.

Wei Li from BNP Paribas emphasized that the PBOC's goal is to maintain an upward-sloping yield curve to encourage growth and investment.

This aggressive stimulus package, the most significant since the pandemic, led to notable gains in the stock market but caused a decline in bond prices.

Market analysts suggest that there may be a shift of funds from bonds to equities as investors anticipate stronger economic growth and higher stock returns.

Reflecting this trend, Chinese bond mutual fund assets fell to 6.55 trillion yuan in August, marking a 6% decline from the previous month.