The People's Bank of China, the country's central bank, may soon sell borrowed long-term Chinese government bonds, a move that would help safeguard financial stability and add a new tool of liquidity management, market experts said.

The PBOC said in an announcement on Monday that it would borrow treasury bonds in the near term from primary dealers — mainly commercial banks — to maintain the sound operation of the bond market, based on prudent assessment of the market situation.

The move, which is considered unusual for the PBOC, has attracted attention as some market analysts said this could even mark the first time for the central bank to borrow Chinese treasury bonds in open market operations.

According to market tracker Wind Info, the most-active contract for 30-year Chinese treasury bond futures fell 1.06 percent on Monday and that for 10-year treasury bond futures fell 0.37 percent. The contracts recouped some losses on Tuesday, with the 30-year contract up 0.28 percent and the 10-year one up 0.25 percent.

The announcement came after financial institutions poured money into long-term Chinese treasury bonds this year, driving the yield on 10-year treasury bond to about 2.2 percent on Monday, down from about 2.6 percent at the end of last year. Bond yields move in opposite direction to prices.

Regulators have paid heed to this trend as prices of long-term bonds would sharply decline when interest rates increase, making the asset value held by financial institutions slump and destabilize the financial system.

For instance, the value of Silicon Valley Bank's holdings of long-term securities shrank significantly as the US Federal Reserve drastically hiked interest rates, which was a key reason for the deadly bank run it encountered.

Citing the SVB collapse as a lesson, PBOC Governor Pan Gongsheng said last month that the central bank would take prompt action to blunt risk accumulation in financial markets.

Analysts said borrowing treasury bonds will give the central bank an effective lever to cool down the bond market rally and mitigate the associated financial risks.

Luo Zhiheng, chief economist at Yuekai Securities, said borrowing securities will help the central bank quickly acquire long-term treasury bond holdings — they are likely limited in size right now — so that it can sell them in the secondary market, driving down bond prices and pushing up bond yields.

"While the PBOC announcement has not disclosed the size or maturity of the treasury bonds it plans to borrow, we anticipate that the PBOC will borrow long-term treasury bonds and then sell them at an opportune time, given its repeated warnings about long-term bond yield risks since May. The sale of these bonds may happen soon," Luo said.

Monday's announcement, according to analysts, may also signal a beginning for the PBOC regularly using the sales and purchase of government bonds as a tool of liquidity management. By selling the borrowed bonds, the PBOC can withdraw liquidity from the market; and by buying the bonds to return them, it can inject liquidity.

The central bank may position the trading of government bonds more as a means to issue base money and manage market liquidity, said a Huatai Securities report.

The scale of these operations, it said, is expected to be limited in the short term and expand gradually.