Author | Huang Zhihao, Gu Huaiyu, Zhang Juntao, Fu Xiaoyun, Guo Jiayi
FICC, Trading Strategy
Unilateral:
China Bonds: The 6M interest rate on the rediscount of bills and national stocks continued to decline, which was significantly weaker than the seasonal, and the market expectation of interest rate cut increased. Interest rate swap FR007 interest rate fell to a recent low of 1.83%, and the market is betting on a downward trend in the funding rate in the second half of the year. The central bank has not warned of the risk of long-term bond interest rates, and the attitude has softened marginally, and the 10-year and 30-year treasury bonds may break down to the previous low of 2.2% and 2.4%.
U.S. bonds: It is expected that the new non-farm payrolls data in June will be better, and the U.S. Treasury 10Y yield is expected to rise further to 4.46%~4.5% to test the resistance.
Chinese U.S. bonds: market sentiment picked up, and the overall rose slightly.
RMB exchange rate: The central parity has moved up slowly, CNH liquidity has not been significantly tightened, and the upper limit and pivot of USD/RMB have further moved up.
Precious metals: Gold fund holdings are deadlocked, or it will still take some time to digest.
Crude oil: The bullish sentiment in the WTI market has increased significantly recently, and more bullish factors are needed to stimulate the bullish sentiment to continue to rise.
Curve:
This week, the term spread between the 10-year Treasury and the 1-year Treasury closed at 67bp, unchanged from last week. It is expected that the capital side will remain loose in July, and the term spread may widen slightly.
The slight rebound in Treasury maturity spreads may have been largely influenced by Trump's better performance in the first round of the election.
Spread/Comparison:
With the gradual weakening of the anchoring effect of the 1-year MLF policy interest rate, the downside constraints on interbank certificates of deposit have been reduced, and the 1-year AAA interbank certificates of deposit have the opportunity to fall below the previous low of 1.9%; The 3-year CDB bond has relative allocation value.
The spread between U.S. and U.S. Treasury bonds and the implied spread of swaps both widened from last week, and the gap between the two continued to widen.
CNH HIBOR liquidity is stable, the CNY-CNH spot spread widens, and the swap pressure partially returns to the spot market.
The spread between domestic and foreign gold fluctuated slightly. The recovery in the gold-silver ratio has slowed.
Watch: Caixin China PMI for June, ISM PMI for June, Non-Farm Payrolls for June, French election.
1. Market review
This week, China's bond interest rates fluctuated to the downside. On June 26, the yield on the 1-year AAA interbank certificate of deposit broke 2.0%, which deviated from the capital side. On June 28, the Monetary Policy Committee of the People's Bank of China held a regular meeting for the second quarter of 2024, and the overall expression was consistent with the regular meeting of the first quarter. On June 30, the Bureau of Statistics released PMI data, the manufacturing PMI was the same as the previous month, below the boom and wither line for two consecutive months, and the overall pattern of insufficient domestic demand, weakened external demand, and strong production was maintained, and the demand differentiation of large and small enterprises was eased. For the whole week, the interest rates of 10-year and 30-year China Bond active bonds fell to 2.21% and 2.43% respectively.
This week, the rhetoric of European and American central bank officials was divided, and the Federal Reserve was more hawkish than the European Central Bank, and the dollar index fluctuated and strengthened. Although the core PCE inflation in the United States in May increased by 2.6% on Friday to a new low in more than three years, and the University of Michigan inflation expectations fell, but the first debate of the U.S. election ended, Trump's performance clearly prevailed, and the market began to price in the possibility of Trump winning the U.S. presidential election, and U.S. Treasury yields rebounded sharply from daily lows and closed the week higher. The power of bulls and bears is intertwined, and gold closes the doji this week. The central parity of USD/RMB continued to rise slightly, and USDCNH once exceeded 7.30.
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