The central bank has withdrawn 1.2 trillion yuan for four consecutive days, and the capital expectation after the cross-holiday is still tight

With the end of September, when capital is tighter, the market's liquidity expectations for October after the "double festival" have generally returned to neutrality, but most views believe that it is still difficult to say loose.

In the four working days after the National Day holiday, the central bank withdrew 1,215 billion yuan of net liquidity through the open market. Among them, 67 billion yuan of 7-day reverse repurchase operation was carried out on October 10, and 378 billion yuan of 14-day reverse repurchase expired on the same day, with a net withdrawal of 311 billion yuan.

From the weighted average price trend of DR007 (7-day pledge repo rate for deposit institutions in the interbank market), although the funding rate fell from the end of September in October, the overall level was still higher than the policy rate, maintaining above 1.8%. A number of institutional sources said that the capital level in October will improve compared with September, but it still faces pressure from many aspects, including government bond payments, the expiration of large-scale reverse repurchase in the open market of the central bank, large months of taxation, and exchange rate fluctuation constraints.

Regarding government bond payments, several institutions cited pressure on the supply of funds for special refinancing bond issuances. Sun Binbin, an analyst at Tianfeng Securities, believes that in the case of continuous fluctuations in exchange rates, it is still necessary to pay attention to the constraints of external equilibrium, and it is expected that it will be difficult to return to easing in October, but it will not tighten further.

In terms of broad liquidity, taking into account factors such as economic recovery and higher month-end note rates, the industry is more optimistic about September's social finance and credit data, and clearly sees the easing of capital idling. Looking forward to October, the credit investment boom is not low, but the "pumping" effect may weaken.

The high funding rate has fallen back but is still not low

As of October 10, the weighted rates of DR001 and DR007 were 1.8266% and 1.8684%, respectively, and DR014 was reported at 1.9225%, down about 37BP, 37BP and 129BP respectively from September 28, and the financial tension was significantly eased from the end of the quarter. Overall, the funds rate has been relatively high since late August, with DR007 mostly above the policy rate (1.8%).

Looking back at September, which was cross-season and on the eve of the "double festival", DR007 remained above 1.9% most of the time, and went to more than 2% in the second half of the year. On September 28, DR001 and DR007 both rose to more than 2%, and DR014 hit a high of 3.2173%. As the cross-quarter ended, the funding rate gradually returned to near the policy rate.

After the long holiday, the central bank carried out 7-day reverse repurchase operations of 200 billion yuan, 20 billion yuan, 20 billion yuan and 67 billion yuan on October 7~10, considering that a total of 1,522 billion yuan of reverse repurchase expired in the same period, and the central bank withdrew 1,215 billion yuan through the open market in 4 days.

Previously, according to the statistics of Everbright Securities, the central bank lowered the RRR beyond expectations, the incremental continuation of MLF (medium-term lending facility) and the increase in OMO (open market operation), with a total of about 3.14 trillion yuan of cross-quarter end-of-quarter funds, higher than the 2.39 trillion yuan of cross-Spring Festival funds invested during the year. However, this is still difficult to stop the upward trend of the funding rate.

In the view of industry insiders, the net withdrawal of funds at the beginning of this month reflects that liquidity is relatively abundant after the cross-quarter, and the central bank flexibly adjusts to maintain reasonable and sufficient liquidity. But for now, the back-of-the-road funding rate is still above the policy rate, with DR007 only falling below 1.8% on October 8 to 1.7577%.

However, the higher funding rate in September has its peculiarities, and the current situation has been markedly different. According to Wang Yifeng, chief analyst of the financial industry of Everbright Securities, the tight capital in September mainly has several special backgrounds: first, the credit release at the end of the quarter has formed a certain amount of liquidity between banks; Second, after the deposit rate cut, the migration of institutions increased, which pushed up the pressure on the debt side of the state-owned stock bank, and the willingness of large banks to contribute capital declined; Third, the supply of government bonds and the allocation of fiscal funds lag behind or cause certain disturbances to the capital surface (September is still the peak time for government bond supply during the year); Fourth, the exchange rate is under pressure in the short term, or it has formed a certain constraint on the central bank's cross-quarter capital investment, resulting in "sufficient quantity and price is not low".

Sun Binbin also believes that the central bank's focus on capital arbitrage and idling, "scientific and reasonable grasp of interest rate levels", may also be one of the factors affecting the capital level.

Against the above background, coupled with the sharp rise in the bill rediscount rate at the end of the month, there are clear signs of bank selling notes to make room for credit, and the market is generally optimistic about the September social finance and credit data. Wang Yifeng believes that the total amount of credit in September was flat or increased year-on-year, the structure was significantly optimized compared with August, and the financing demand for the public and retail sectors was further improved.

Shenwan Hongyuan predicts that considering the high base in September last year, it is expected that the new credit (social financing caliber) in September this year will be about 2.6 trillion yuan, which is roughly the same as the same period last year, and the growth rate of social financing is expected to be basically the same as last month (9%).

Tight or loose in October? Pay attention to several factors

Looking forward to October, Ni Jun, a banking analyst at GF Securities, believes that as the fiscal sector continues to improve from bond issuance financing to expenditure, the expansion of infrastructure government debt and the promotion of real estate stabilization policies will drive the steady expansion of credit, etc., the focus of policy will gradually shift to the fiscal, credit and capital markets, the asset shortage will gradually recede, the expansion of social financing is expected to rise in both volume and price, and broad liquidity is more optimistic.

However, considering that October is a small month for traditional credit, institutions are less concerned about the impact of credit "pumping". Sun Binbin believes that there has been no further new policy instrument arrangement since September, and it is expected that the incremental support of credit in October will be limited, but the recovery of credit demand itself is also worth paying attention to, and the silver bill rediscount rate, which has continued to rise since the end of August, is an important observation indicator.

In addition to credit consumption, October is also a big tax month, which will also interfere with the capital side. However, in contrast, for the pressure on interbank liquidity in October, industry insiders are generally more concerned about the supply of government bonds, the pressure of the central bank's reverse repurchase maturity, and the constraint of external balance.

The first is government debt. On the one hand, according to the calculation of Tianfeng Securities, according to the current issuance progress and fiscal deficit, the remaining amount in the fourth quarter will be averaged to each month, and it is expected that the net financing scale of government bonds in October will be about 260 billion yuan, lower than in September and higher than last year; On the other hand, local bonds are also the main pressure, especially for the special refinancing bonds that began to be released in October, and many institutional figures have suggested that there is pressure on funds.

According to the information disclosed by the China Bond Information Network, since the special refinancing bond issuance was launched again after more than a year, at least 6 provinces will issue a total of about 319.7 billion yuan, more than in the whole of 2022, and the market generally expects more provinces to start issuance one after another. According to statistics from GF Securities, although the issuance of government bonds fell from a high level in October, it was still not low, and the net payment of government bonds in the first week after the holiday was about 267.2 billion yuan.

The second is the expiration of large-scale reverse repurchase in the open market of the central bank. According to Wind data, the total maturity scale of reverse repurchase in October was about 2.75 trillion yuan, of which the large-scale 14-day reverse repurchase issued by the central bank in late September was the mainstay, and another 500 billion MLF expired.

Sun Binbin predicted that considering the current overall macro state, the central bank may continue to overextend the MLF in October.

Finally, there are external exchange rate constraints. "From the perspective of capital in August ~ September, the primary problems of liquidity are exchange rate fluctuation risk and external equilibrium issues." Sun Binbin believes that based on the fundamentals of the US economy, the Fed's interest rate hike path and China's domestic economic weakness repair pattern, the pressure on the RMB exchange rate still exists, and it is expected that the impact path of "external strength and internal weakness→ internal and external equilibrium → marginal convergence of funding interest rates" will continue, which is also an important factor affecting the capital in October.

"Since the RMB exchange rate broke 7 on May 18, although it has experienced two interest rate cuts and one RRR cut, the fluctuation center of the funding rate has increased, obviously, the external equilibrium has affected the internal equilibrium, and the exchange rate fluctuation has brought about changes in the capital level." Sun Binbin said.

Wang Yifeng also believes that under the current pressure on the exchange rate, it is expected that it will be difficult for the demand for foreign exchange settlement to pick up significantly in October. Coupled with the increase in the popularity of outbound tourism during the "double festival" period or the increase in current account foreign exchange expenditure, the foreign exchange account may remain weak in October.

The good news is that as the idling arbitrage problem improves, its disruption to liquidity is expected to diminish. Sun Binbin believes that at the regular policy briefing of the State Council in September, Zou Lan, director of the monetary policy department of the central bank, did not mention the problem of preventing idling arbitrage, and on the basis of reducing the RRR by 0.25 percentage points, the central bank maintained the excessive renewal of MLF in September. Sun Binbin believes that this reflects that the central bank still focuses on creating a suitable liquidity environment for credit delivery and financial markets.

"It is difficult for funds to return to easing in October, but overall it will not tighten further." Sun Binbin combined with historical law analysis, in previous October overnight funding rate performance was relatively stable, 7-day funding rate often fell slightly after the holiday to mid-October, after the middle of the year began to rise, in October this year DR007 may be in the range of 1.8% ~ 2.2%. Wang Yifeng also predicted that market interest rates in October may be "low before and then high", and it is difficult to see a sharp decline.

However, there are also views that the funding gap in October is smaller than that in September, and the central bank's early easing monetary policy operation is expected to gradually take effect, and there is still a high probability that the capital level will return to a neutral loose state in October.