BEIJING, May 30 (Reuters) - China's central bank said on

Thursday it will sell low risk debt including government bonds

when necessary, while paying close attention to current bond

market changes and potential risks.

The People's Bank of China (PBOC) made the statement after

Reuters sought comment on the scarcity of low-risk assets in

China's financial sector that is obstructing the bank's plans to

return to the treasury bond market after a 17-year hiatus.

"Currently, there is a large demand for risk-free assets in

the bond market, and bank deposits are diverted to the bond

market due to the expectation of rising bond prices, further

expanding the demand for safe assets," the central bank said.

"The People's Bank of China is paying close attention to

current market changes and potential risks, and will conduct

operations on selling low-risk bonds including government bonds

when necessary."

China's 30-year government bond yield rose

around 2 basis points to 2.54% after the PBOC's statement.

Taking its cue from an October 2023 speech by President Xi

Jinping, the central bank pledged recently to add treasury bond

buying and selling to its policy toolkit, to help manage

liquidity and interest rate risks.

But the PBOC's bond trading, which help deepen the bond

market, faces some near-term obstacles, analysts and policy

advisers say, adding that the central bank may have to take

small steps to limit the impact on the debt market.

The PBOC last bought bonds in 2007 for the creation of the

sovereign wealth fund China Investment Corp. Its total holdings

stand at 1.52 trillion yuan ($209.74 billion), roughly 3.5% of

its total assets.

($1 = 7.2471 Chinese yuan renminbi)