China’s commercial banks sharply cut their holdings of corporate bonds last month in response to a heavy supply of local government paper, even as recent easing measures announced by the central bank encourage lenders to buy more company notes.

Commercial banks’ holdings of corporate notes, including commercial paper, medium-term notes and debentures, tumbled by 67 billion yuan ($9.7 billion) from June to 1.8 trillion yuan last month, the biggest slump since February 2017, according to data from Chinabond and Shanghai Clearing House.

Commercial banks may have taken profits as they bought these corporate notes several months back, said Ming Ming, head of fixed income research at Citic Securities. Supply pressure from local government bonds in July may have also led to the reduction in company bond holdings, he said.

China’s local governments sold 682.9 billion yuan of bonds in July, most in a year, according to data compiled by Bloomberg.

The central bank broadened the range of collateral it accepts in its medium-term lending operations in June, to include corporate bonds with AA+ and AA ratings in a bid to ease funding pressure in the economy. While latest data on banks’ bond holdings aren’t encouraging, China’s new yuan loans rose more than expected last month in response to the more relaxed policy aimed at boosting economic growth.

The central bank’s window guidance is not always very effective, said Becky Liu, Hong Kong-based China macro strategist at Standard Chartered Plc. Considering that banks’ capital is tight and buying company notes is risky, corporate bonds look less attractive than government bonds, Liu said.