Rare! The central bank "shorts"

UBM Finance

2024-07-01 17:59Official account of Shenzhen Tiantian Say Money Investment Consulting Co., Ltd

Original Liu Xiaobo

Just when the market was expecting the central bank to buy treasury bonds in the secondary market and release water to the market, a surprising reverse operation came!

The central bank announced: ready to sell government bonds!

Since the People's Bank of China rarely bought treasury bonds in the secondary market, it did not have much inventory and a single variety. So the central bank has come up with a new way of playing: first borrow treasury bonds, and then dump!

At noon today, the central bank announced through its official website that it has decided to carry out treasury bond borrowing operations for some primary dealers in the open market in the near future.

Affected by this news, the treasury bond and treasury bond futures market was in the green across the board.

For example, the "main bond connection" variety listed on the Shanghai Gold Exchange has the following trend:

Today's long black candlestick and large volume are stimulated by this news.

Another example is the 30-year Treasury bond futures main company, and the trend is similar.

When Treasuries fall, yields rise. Reflected in the 10-year Treasury yield, it looks like this:

It is estimated that many readers do not understand: what is the relationship between the central bank saying that it wants to borrow treasury bonds and selling treasury bonds?

In fact, it is very simple, borrowing is to sell, which is equivalent to shorting securities lending!

The chart below shows the central bank's balance sheet:

The central bank currently holds 1.52 trillion yuan of government bonds. If it is sold, it is possible to sell this part of the treasury bonds directly. However, the central bank rarely bought and sold treasury bonds in the secondary market before, and the treasury bonds it held were special treasury bonds, and the varieties were relatively simple.

In order to intervene in the price of treasury bonds, there must be a relatively rich variety and quantity. But the problem is that the central bank has no chips in hand, so it has to borrow.

Previously, the central bank and the Ministry of Finance had announced that in the future, the central bank will normalize the trading of treasury bonds in the secondary market. We are in a bull market and monetary expansion period, so the first thing that comes to everyone's mind is that the central bank must buy it.

So after this news came out, the treasury bond market became even more bullish. The big players in government bonds, mainly banks and non-bank financial institutions, are betting that China's interest rates will fall for a long time.

Now it is in a period of "abundant funds + asset shortage", and many funds are idling arbitrage. Speculating in treasury bonds is the main way of arbitrage.

The institutions involved in the speculation of treasury bonds have formed two consensuses: first, due to the inflection point of real estate and the decline of land finance, the state will issue a large number of treasury bonds in the future, so the bullish amount of treasury bonds should be encouraged; Second, China's long-term interest rates will fall, and the future government bond interest rates will also continue to fall.

The Treasury bond market is too hot, and a series of risks are brewing. For example, the maturity mismatch of institutions, and the risk of future interest rate fluctuations.

The bond market is too hot, and it will also divert funds from the stock market, leaving the stock market in jeopardy.

The central bank needs to balance the interests of all parties and warn against the risk of "convergence of expectations".

On the evening of May 30, the Financial Times, the central bank's supervising media, published an article titled "Long-term Treasury Bonds Are So Hot? Experts remind: we should pay attention to risks", judging from the central bank's recent statements, there will be no purchase of treasury bonds at present. If long-term Treasury yields continue to fall, it is not a good time to buy. On the contrary, if a large amount of bank deposits diverts the bond market and the demand for risk-free assets further increases, the PBOC should sell government bonds if necessary.

Pan Gongsheng, governor of the central bank, also warned again at the Lujiazui forum: "It is necessary to pay attention to the maturity mismatch and interest rate risk of some non-bank entities holding a large number of medium and long-term bonds, maintain a normal upward slope yield curve, and maintain the positive incentive effect of the market on investment." ”

In other words, the central bank may sell Treasury bonds to calm market prices, which is warned in advance.

But the market is like this, it must form an expectation, it will reinforce itself, and it will turn a deaf ear to the warning.

Now, the board has finally fallen!

The central bank breaks with the norm by borrowing Treasury bonds from primary dealers, such as big banks, and then selling them. When the price of treasury bonds falls, buy at the low point and return it to the primary trader, and you can earn the difference in the middle. It is the same as shorting securities in the stock market.

The central bank has done this, which is negative for the treasury bond market, so all varieties of treasury bond spot and futures have fallen today, which is conducive to bringing the market back to rationality.

At the same time, it is positive for the stock market and the exchange rate. Today, the Shanghai Composite Index went all the way up, up 27 points. The offshore renminbi exchange rate also rebounded slightly.

The bond market is more rational, which is conducive to the return of funds to the stock market; Treasury bonds fell and yields rose, which is conducive to avoiding the intensification of the inversion of interest rates between China and the United States, which is good for the stability of the RMB exchange rate.

More importantly, the central bank has started the normal trading of treasury bonds in the secondary market by borrowing and selling them.

This is a major change in history.

It means that there has been a major change in the way the renminbi prints money in the future. 10 years ago, the way to increase the base currency (money printing) was mainly foreign exchange appropriation, that is, the surplus generated by the acquisition of foreign trade activities; In the last 10 years, the increase in base money is mainly "claims on financial enterprises", that is, lending money to large banks and other institutions (medium-term lending facilities, collateral supplementary loans).

In the future, the way to increase the base money will be to buy Treasury bonds, similar to the Fed's balance sheet expansion, which is equivalent to giving money to the treasury. The ability of incremental money to reach the treasury directly will be greatly enhanced.

It is interesting to see that by "selling", the path of "buying" is opened.

Recently, many of the central bank's "plays" are seeking change and innovation, such as the next way of cutting interest rates. In the future, the first to signal an interest rate cut will no longer be the interest rate of the one-year medium-term lending facility, but the interest rate of the seven-day reverse repo. The flexibility of the central bank to cut interest rates will be greatly enhanced, and the signal of interest rate changes will be transmitted every working day (previously 1 per month).

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