CFIC Introduction
On July 1, in order to maintain the steady operation of the bond market, the central bank decided to carry out treasury bond borrowing operations for some primary dealers in the open market in the near future on the basis of prudent observation and assessment of the current market situation.
Original title: Afternoon blockbuster! On July 1, the central bank announced that in order to maintain the steady operation of the bond market, on the basis of prudent observation and evaluation of the current market situation, it was decided to carry out treasury bond borrowing operations for some primary dealers in the open market in the near future. As of press time, treasury bond futures dived across the board, with the main 30-year treasury bond futures contract falling 0.53% to 109.02 yuan, and the 10-year treasury bond futures main contract falling 0.16% to 105.195 yuan. The yield of long-end cash bonds rose rapidly, smoothing out the downward range of the day. The yield on the 10-year Treasury rose 0.7 basis points to 2.24%, and the yield on the 30-year Treasury rose 0.65 basis points to 2.43%. A bond trader told reporters that the central bank has repeatedly reminded the risk of long-term bond interest rates, and will guide long-term interest rates upward through expectation management or treasury bond trading operations. Ming Ming, chief economist of CITIC Securities, said that the central bank's move may mean that it will sell treasury bonds in the open market in the near future. At a time when the yield on 10-year Treasury bonds fell to record lows, selling Treasury bonds is conducive to stabilizing long-term bond interest rates and guarding against interest rate risks. For some time, the financial authorities have repeatedly reminded investors to pay attention to the potential investment risks in the bond market. Pan Gongsheng, governor of the People's Bank of China, said at the Lujiazui Forum a few days ago that the trading of government bonds in the secondary market will be gradually incorporated into the monetary policy toolbox. Pan Gongsheng also said that the rapid development of the financial market has also brought new challenges to the central bank. The risk event of Silicon Valley Bank in the United States enlightens us that the central bank needs to observe and evaluate the situation of the financial market from a macro-prudential perspective, correct and block the accumulation of financial market risks in a timely manner, and pay special 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.
Source of this article: Shanghai Securities News
Author: Zhang Xinran Zhang Jones
【Xinhua Interpretation】The "interactive door" between the policy and the market has been launched, and the central bank's borrowing operation will be far-reaching
The central bank's trading of treasury bonds is about to enter the "practical operation" link, and the initial signal triggers short-term fluctuations in the bond market. The official website of the People's Bank of China said on the 1st that in order to maintain the stable operation of the bond market, on the basis of prudent observation and evaluation of the current market situation, the People's Bank of China decided to carry out treasury bond borrowing operations for some primary dealers in the open market in the near future. With the announcement of this blockbuster news in the afternoon, it means that buying and selling treasury bonds is no longer "on paper", and the take-profit market in the bond market has triggered a rapid rise in yields, and the futures bonds have fluctuated and pulled back simultaneously. Market participants said that in the past, the central bank sold very few treasury bonds, and the use of monetary policy tools was mainly aimed at liquidity adjustment. The central bank borrowed bonds to sell in the secondary market, which will affect the supply and demand of bonds to a certain extent, thereby disturbing the yield curve pattern in the short term, but it is not expected to bring about a trend adjustment. Does "borrow" mean "sell"? If the central bank borrows treasury bonds and sells them in the open market, the maturity, scale and interest rate corresponding to the operation will have an important guiding role in the market. China Post Fixed Income pointed out in a previous research report that the central bank has sold very few treasury bonds in history, and most of them have been mainly for the purpose of liquidity adjustment, and it is expected that the scale of the operation will be difficult to scale, and more attention will be paid to the release of price guidance signals. Liang Weichao, chief analyst of fixed income at China Post Securities, told Xinhua Finance that the central bank has sold very few treasury bonds in history, which is not the mainstream of bond trading operations in the open market, and the use of tools in history is mainly for the purpose of liquidity regulation, and there have been cases where the price has been actively guided, but there are few cases. "Referring to the structure of the central bank's treasury bond holdings, it may be difficult to sell directly, and the stock of individual bonds with a maximum remaining maturity of 8 years is not large, and the central bank has not operated a buyout repurchase in history, and the actual operation mode needs to be verified. However, it is expected that the scale of operation may be difficult to scale, and more attention is paid to the release of price guidance signals. Liang Weichao further explained. Yang Weiyi, assistant director of Guoyuan Securities Research Institute and head of total research, also said to Xinhua Finance, "The central bank's move is intended to adjust the long-term yield, so the securities lending should be long-term varieties." On the other hand, the central bank does not want to make the market liquidity too tight, so after the subsequent selling, it will take measures to hedge the impact of this move on liquidity, which will not have too much impact on the yield curve as a whole, and at most will disturb the curve shape, which is not enough to cause a trend reversal in the bond market. "However, the level of interest rates for subsequent operations is important, which will be related to how many institutions are willing to trade with the People's Bank of China." Yang added. Ming Ming, chief economist of CITIC Securities, reminded Xinhua Finance that this move means that the People's Bank of China may carry out treasury bond sales in the open market in the near future. At a time when the yield on 10-year Treasury bonds has fallen to a record low, selling Treasury bonds is conducive to stabilizing long-term bond interest rates and guarding against interest rate risks. Zhu Chendong, an investment consultant at Jianghai Securities, said, "If the borrowing period is dominated by long-end and ultra-long-end, the interest rate of short- and medium-duration bonds is expected to stabilize." In terms of scale, it can be compared with the net issuance scale of subsequent special government bonds and local government bonds in order to further assess the impact on the subsequent interest rate trend. Zhu Chendong also pointed out that at present, some institutions in the market are in a state of "undermatch". In the second half of the year, the issuance of special treasury bonds and local bonds will be accelerated, and the central bank is preparing to sell treasury bonds in the open market at this time, which may also be to ease the allocation needs of institutions in advance, and let some transactional institutions adjust their expectations to prevent excessive speculation. For institutions that are underweighted, they can take advantage of the rise in interest rates to make allocations. There is a "law" and a "need"! Over the years, the mainland treasury bond market has made great progress, creating conditions for the trading of treasury bonds in cash. A responsible person of a relevant department of the People's Bank of China said that the mainland government bond market has ranked third in the world, and its liquidity has increased significantly, which has made it possible for the People's Bank of China to carry out treasury bond cash bond trading operations in the secondary market. In fact, the central bank's buying and selling of treasury bonds in the open market is also a common monetary policy operation in Europe and the United States. Wang Jiaqiang, a senior researcher at the Bank of China Research Institute, said that the monetary authorities of major European and American economies regulate liquidity in the secondary market by purchasing treasury bills and treasury bonds, so as to achieve the purpose of influencing the yield of treasury bonds, which is an important tool for the monetary policy of European and American economies. From a legal point of view, there is also a legal basis for the mainland central bank to increase the purchase and sale of treasury bonds in open market operations. According to the People's Bank of China Law, the People's Bank of China can buy and sell government bonds, other government bonds, financial bonds and foreign exchange in the open market in order to implement monetary policy. The Central Financial Work Conference proposed that the monetary policy toolbox should be enriched and the purchase and sale of treasury bonds should be gradually increased in open market operations. At the Lujiazui Forum on June 17, Pan Gongsheng, governor of the People's Bank of China, said, "The People's Bank of China is strengthening communication with the Ministry of Finance to jointly study and promote implementation." This process as a whole is gradual, and the rhythm of treasury bond issuance, term structure, and custody system also need to be studied and optimized simultaneously. It should be noted that the inclusion of treasury bond trading in the monetary policy toolbox does not mean that quantitative easing is to be carried out, but rather that it is positioned as a channel for the delivery of base money and a liquidity management tool, both for buying and selling, and for a comprehensive combination with other tools to jointly create a suitable liquidity environment. "Many analysts believe that the central bank also has a practical need to increase the purchase and sale of treasury bonds in the open market. Wang Jiaqiang said that the mainland central bank operates the trading of treasury bonds in the open market, which can better cooperate with the smooth issuance of treasury bonds; It is conducive to improving the transmission efficiency of monetary policy, promoting the coordination of short-term, mid-term and long-end interest rates, and avoiding large fluctuations in market interest rates; We will further enrich the monetary policy toolbox, better coordinate with the implementation of fiscal policy, and promote the effective transmission of macroeconomic policies. Under the background of the news of the central bank's borrowing on the same day, the short-selling sentiment in the bond market was unprecedentedly strong, and the profit-taking orders after the previous surge continued to emerge. As of the close of the market on the 1st, treasury bond futures closed down across the board, with the 30-year main contract down 1.06% at 108.44, the 10-year main contract down 0.37% at 104.975, the 5-year main contract down 0.24% at 103.765, and the 2-year main contract down 0.08% at 101.884. Interbank cash notes weakened sharply at the same time, and yields rose in response to the afternoon news. According to the data, the yield of the 10-year Treasury bond active bond 240004 was 2.2115% before the announcement, and then rose to 2.2850%, with a maximum increase of 7.35BPs, and the current bond is at 2.27% after hours, which is slightly converged from the intraday high.
In response to the market's fierce feedback, Zhang Xu, chief analyst of Everbright Fixed Income, told Xinhua Finance that "the expectations of the investor group are independent, and some people are more sensitive to regulatory guidance, and some people's reactions are correspondingly lagging behind, which is a normal phenomenon." In recent years, in the process of formulating and implementing monetary policy, the People's Bank of China has continuously improved the management of expectations, formed a scientific and effective mechanism for managing and guiding monetary policy expectations, and enhanced the transparency and credibility of the central bank. "We need to look at the policy guidance role of regulation in a longer-term perspective. If long-term Treasury yields return to a reasonable range that matches long-term growth expectations in the coming quarter, then the effectiveness of monetary policy transmission can be strengthened. Zhang Xu said. Pan Gongsheng previously pointed out that the rapid development of the financial market has also brought new challenges to the central bank. The risk event of Silicon Valley Bank in the United States enlightens us that the central bank needs to observe and evaluate the situation of the financial market from a macro-prudential perspective, correct and block the accumulation of financial market risks in a timely manner, and pay special 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.
Source of this article: Xinhua Finance
Author: Wang Jing
WeChat editor: Liu Sile
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