The central bank announced that it would borrow government bonds, and the yield on long-term bonds rebounded from a low level

The New Economist

2024-07-01 18:31Creator in the field of finance

After long-term government bond yields hit record lows, the People's Bank of China (PBOC) stepped in to stabilize the bond market.

On the afternoon of July 1, the central bank announced that "in order to maintain the stable operation of the bond market, on the basis of prudent observation and assessment of the current market situation, the People's Bank of China has decided to carry out treasury bond borrowing operations for some primary dealers in the open market in the near future." ”

"The central bank's move means that there may be a sale of treasury bonds in the open market in the near future." Ming Ming, chief economist of CITIC Securities, said, "At a time when the yield of 10-year treasury bonds has fallen to a record low, selling treasury bonds is conducive to stabilizing long-term bond interest rates and preventing interest rate risks." ”

The central bank announced that it would borrow government bonds, and the yield on long-term bonds rebounded from a low level

After the announcement, treasury bond futures dived across the board, of which the 30-year main contract fell 0.6%, the 10-year main contract fell 0.15%, and the 5-year and 2-year main contracts fell 0.06% and 0.02% respectively.

In the spot market, yields on treasury bonds of multiple maturities have risen significantly. Among them, the yield of the 10-year treasury bond active bond "24 interest-bearing treasury bond 04" once rose to above 2.28%, up more than 5 bp (basis points); The 30-year active treasury bond "23 interest-bearing treasury bond 23" once rose above 2.48%, up more than 6 bps.

"From the perspective of historical experience, if the market's response to the expectation guidance is too flat, the central bank is more likely to increase the intensity of the expectation guidance and start to use other policy tools, and finally realize the 'words and deeds' of the central bank's policy operation and external communication to confirm and coordinate and maintain the expectation guidance." Zhang Xu, chief analyst of fixed income at Everbright Securities, said.

It is worth noting that after the sharp rally, the yields of many active bonds have retreated. Among them, the "24 interest-bearing treasury bonds 04" once wiped out all the gains, and the "23 interest-bearing treasury bonds 23" once fell back to less than 2 bps in the day. Many market participants believe that this fluctuation shows that some institutions are taking advantage of the opportunity to buy the bottom.

"It is estimated that interest rates will rise (rise) today and tomorrow, and then the market will observe the details of the central bank's operation." An asset manager believes that the market will continue to test the determination of the central bank to act in the future.

Treasury yields rose from low levels

After the market opened on the morning of July 1, the yields on 10-year and 30-year Treasury bonds both fell to historic lows.

According to data from Oriental Wealth Choice, the yield of the 10-year active treasury bond "24 interest-bearing treasury bond 04" fell to 2.2100% intraday, hitting a record low; The yield on the 30-year active Treasury bond "23 Interest-bearing Treasury 23" fell intraday to 2.4060%, also hitting a record low.

At 13:10 p.m., the Monetary Policy Department of the People's Bank of China issued an announcement on open market business, announcing its decision to carry out treasury bond borrowing operations for some primary dealers in open market business in the near future, and the market trend immediately reversed.

Treasury bond futures prices turned from rising to falling across the board. Among them, the main contract of 30-year treasury bond futures fell more than 1% intraday, the main contract of 10-year treasury bond futures fell more than 0.4%, and the main contract of 5-year treasury bond futures fell more than 0.2%.

In terms of spot, the yields of "24 interest-bearing treasury bonds 04" and "23 interest-bearing treasury bonds 23" rose by more than 5 and 6 bps respectively in intraday. Bond yields move in the opposite direction of bond prices, and rising yields mean that bond prices are falling, i.e., investors are selling their bonds, and vice versa.

"After borrowing bonds, the central bank has more 'chips' in monetary policy operations, and it may choose to sell the corresponding bonds in the secondary market." Zhang Xu said that after the above-mentioned announcement was put on the Internet, the yield of treasury bonds rose significantly and treasury bond futures fell rapidly.

"This will affect the supply and demand of the secondary bond market, which may affect the trend of interest rates, so as to avoid the interest rate of medium and long-term Treasury bonds from deviating too much from a reasonable level." Dong Ximiao, chief researcher of Zhaolian, said, "Through this move, the central bank reminds financial institutions and individual investors to pay attention to the maturity mismatch and interest rate risk that may arise from investing in medium and long-term bonds." Investors should make investment decisions based on reasonable expectations of economic fundamentals, combined with their own assets and liabilities, and attach great importance to interest rate risk. ”

Since the beginning of this year, boosted by factors such as asset shortages, long-term treasury bond yields have continued to decline, of which the yields of 10-year and 30-year treasury bonds have fallen by more than 30 bps, hitting historical lows.

In this regard, the central bank itself and through mainstream media such as the Financial Times have repeatedly warned that the yield of long-term government bonds is too low or may cause interest rate risks.

On June 18, Pan Gongsheng, governor of the People's Bank of China, reminded in a public speech that "at present, it is especially 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." ”

In the press release of the second quarter regular meeting of the central bank's monetary policy committee released on June 28, the central bank continued the statement in the first quarter meeting, saying, "In the process of economic recovery, we should also pay attention to changes in long-term yields." ”

Against this backdrop, long-term bond yields have fallen back to lower levels again. For example, on the previous trading day (June 28), the yield on 10-year and 30-year Treasuries fell to 2.21% and 2.43%, respectively.

"The central bank's borrowing of treasury bonds this time is to maintain the guidance of early expectations, so as to 'match words with deeds'." Zhang Xu said that if the market's response to the expected guidance is too flat, the central bank is more likely to increase the intensity of expected guidance and begin to use other policy tools, and finally realize the "consistency of words and deeds" between the central bank's policy operation and external communication to confirm and coordinate and maintain the expected guidance.

10-year Treasury yield

Expected to rise to 2.5%

It is worth noting that on the afternoon of July 1, the yield of government bonds rose rapidly and then fell back, maintaining a fluctuating trend at a high level.

Taking "23 interest-bearing treasury bonds 23" as an example, after hitting an intraday high of 2.485%, the bond yield fell back to 2.45% at one point, and the intraday increase shrank to within 3 bps. As of 4 p.m., the bond yield was 2.47%, up more than 4.5 bps in the day.

In this regard, a private equity investment manager said that the logic of asset shortage is still there, and if the funds have nowhere to go, after the fluctuation, it is nothing more than to continue to buy bonds at a different price. "Yields may have to go back."

The above-mentioned asset managers believe that the logic of asset shortage is flawed. It is expected that the yield will rise today and tomorrow, and the follow-up market will observe the details of the central bank's operation before making plans.

"Investors in the market who are long long-term and ultra-long-term interest rate products generally believe that the central bank does not have enough tools to guide the corresponding maturity yields upward. In our view, the attitude of regulators is more critical than the use of specific tools. Zhang Xu stressed that the central bank has not explicitly carried out only one treasury bond borrowing operation, nor has it ever made it clear that it will not use other tools to guide long-term treasury bond yields upward. If bond yields do not move to the satisfaction of monetary authorities in the coming period, then it makes sense to borrow and sell Treasuries again and use the rest of the policy tools.

Based on the above logic, Zhang Xu judged that in the next one or two quarters, the 10-year Treasury bond yield hitting 2.5% is a high probability event. Previously, the central bank's competent media had published an article saying that 2.5%-3% is a reasonable range for long-term government bond yields.

In addition, Zhang Xu reminded that in the bull market stage, investors often unconsciously strengthen the importance of bullish factors, and often do not see the negative factors, once the market adjusts, investors will overemphasize the negative factors.

"The current bond market is not exactly the same as it was before the Q4 2022 correction, but there are many similarities. Perhaps, at this time, investors need to respond to the risk of price fluctuations of bond-like assets in advance and protect their 'money bags'. Zhang Xu said.

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