NCD,MLF
The 1-year NCD rate fell below 2.0% at the end of June. In our report published on 10 May, we noted that the spread between the 1-year NCD and the MLF may be in the range of [-0.58, -0.38], and the NCD rate has continued to move within the forecast range since then. According to the model, the spread between NCD and MLF is affected by the credit side. On the premise that the open market operation rate remains unchanged, if the credit side weakens, the NCD rate is expected to fall further.
As a medium-term policy rate, the MLF rate provides a reference for the pricing of the NCD rate, which fluctuates up and down around the MLF rate. In this paper, we will construct a regression model to help predict the change in the spread between NCD and MLF interest rates.
In this paper, we will fit the spreads between 1-year NCD and 1-year MLF on a weekly and monthly basis, respectively. Among them, we mainly consider three indicators of fundamentals, capital and credit for the monthly model, and we choose more high-frequency indicators for the weekly model, mainly considering three indicators of capital, asset price and exchange rate.
According to the fitting results, the R squares of the monthly and weekly spread models were 0.73 and 0.67, respectively, and the coefficients of each variable were statistically significant at the level of 0.1%. In the historical interval, the accuracy of using the monthly and weekly models to predict the direction of interest rate spreads was 67.0% and 74.3%, respectively.
Overall, the monthly model performs better than the weekly model in judging the trend of interest rate differentials between NCD and MLF, and the weekly model can help determine the short-term direction of interest rate differentials based on the monthly model. The actual spread level in April is not much different from the model-fitting results, or reflects that the current spread is at a more desirable level. Further, assuming that the OMO interest rate is not adjusted for the time being, the funding margin is loose, and the fundamentals and credit sides remain stable, at the 95% confidence level, the model shows that the interest rate differential between the 1-year NCD and MLF may be in the range of [-0.58, -0.38].
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Li Lulin
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Tang Hao
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