The central mother made a move, but there is no simple reversal in the bond market - a list of institutional views

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2024-07-02 15:47Wall Street News Official Account

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01 The central bank announced that it decided to carry out treasury bond borrowing operations for some primary dealers in the open market in the near future, which may have a direct market impact on the bond market.

02 However, in July, the capital side was relatively loose, the risk of the bond market was controllable, and the bullish factors still had an overwhelming advantage.

03 The agency believes that in the short term, the impact on the market may be mainly at the level of sentiment, and the central bank's behavior is the most uncertain.

04 At the same time, "asset shortage", "interest rate cut expectations", and "policy easing expectations" may continue to push bond market yields downward.

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Yesterday, the central bank announced that it decided to carry out treasury bond borrowing operations for some primary dealers in the open market in the near future. What is the impact on the bond market? Can the bond market continue to go long in July?

The agency believes that in the short term, the central bank's borrowing of treasury bonds may have a direct market impact on the bond market, but the capital side in July is relatively loose, and the risk of the bond market is controllable. At the same time, "asset shortage", "interest rate cut expectations", and "policy easing expectations" may continue. Institutions said that in the short term, the impact on the market may be mainly at the emotional level, and the current bullish factors in the bond market are still overwhelming.

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Huaxi Macro Fixed Income: The downward phase of interest rates may be blocked, but the funds are looser in July and the risk of bond market volatility is controllable

What is the impact of the central bank's borrowing of treasury bonds on the bond market? Liu Yu's team of Huaxi Macro Fixed Income pointed out that it has a direct impact on the market, and the downward stage of interest rates has been blocked. The decline in the yield of 30-year and 50-year Treasury bonds below the 1-year MLF rate may deviate from the medium- and long-term interest rate pivot, and the market's advanced pricing catalyzed by the competition mechanism may become the trigger for the central bank to carry out treasury bond borrowing operations. In this context, the subsequent long-term bond and ultra-long-term bond interest rates will fall rapidly to the key point again, which may be hindered by intervention expectations, and the bond market may re-enter a relatively stable stage.

However, at the beginning of July, the capital was relatively loose, and the risk of bond market volatility was controllable. In the first half of July, the capital is often looser, mainly due to the release of funds by large fiscal expenditures at the end of June, usually reaching 2.5-3.7 trillion yuan, to supplement market liquidity. Against the backdrop of relatively low funding rates, medium- and long-term interest rates may not enter a sustained and slow upward process. Yesterday's rise in interest rates may have been mainly a one-off emotional catharsis.

Tianfeng Fixed Income: The central bank's behavior is the most uncertain, but there is no simple reversal in the bond market

Tianfeng Fixed Income's Sun Binbin team pointed out that there are two major characteristics of recent institutional behavior: First, non-bank "asset shortage". Second, there are more prudent institutions in the early stage. It is expected that under the current policy environment, the "asset shortage" of financial institutions may continue. According to this estimate, there may be at least some time for this round of downward movement.

The main pressure on the capital side in July was limited, and the biggest uncertainty disturbance may lie in the exchange rate and central bank behavior. It should be emphasized that exchange rate fluctuations and central bank behavior are only one of the influencing factors on the capital side, and the internal and external equilibrium will still be dominated by the internal, and the monetary policy retains a certain degree of independence, and we are still in the easing cycle.

Another research report from the agency pointed out that the central bank signaled, does the bond market need to be defensive? We judge that the current macro logic of stable growth and easy money is still in the current situation, so there is no simple reversal in the bond market, the possibility of interest rate cuts is still there, and the overall trend of interest rate decline has not changed. So a full-fledged defense is not enough. However, from a stage perspective, the short-term may still be biased towards range-bound fluctuations, and the interest rate in the bond market has a top and a bottom. Because the central bank's behavior needs to be further observed, it is not considered to adjust for the time being, that is, buying.

Huaan Fixed Income: The short-term impact on market sentiment, the bullish factors in the bond market are still overwhelming

How does central bank borrowing affect interest rates? Huaan Fixed Income pointed out that bond lending is closely related to the trend of interest rates: 1. When its balance increases sharply or exceeds the threshold, it is often difficult for the follow-up interest rate to fall significantly, and the implied trading behavior is that the borrower actively shorts at the expense, and at the same time fights against the bulls in the cash market, and the purpose of short selling is stronger; 2. When the loan balance falls back at a high level, it often boosts the interest rate downward, because (1) the decrease in the loan balance reflects the short-selling power of the borrowed bonds, and (2) the amount of the borrowed bonds needs to be bought back the cash bonds, so that the shorts passively multiply.

In conclusion, the central bank's participation in bond borrowing is an innovation and further implementation of monetary policy tools, and the impact on the market in the short term may be mainly at the emotional level, while the current bullish factors in the bond market still have an overwhelming advantage. We can continue to track bond lending, especially the changes in the borrowing balance of key maturity active bonds, to grasp the scale of the central bank's possible sales of long-term bonds in the future.

Shenwan Hongyuan Bonds: July and August are still the window period for interest rate cuts, and easing expectations may push bond yields downward

The expectation of a bond rate cut in June was disappointed, but July and August are still the window period for interest rate cuts, and it may be difficult to cool down the expectation of monetary policy easing in the short term, which may continue to push bond yields downward.

Although the central bank's monetary policy operation needs to take into account multiple objectives such as short-term and long-term, internal and external, stable growth and risk prevention, the lack of effective demand is still the core contradiction, and the central bank also continues to remind that the growth of money and credit has changed from supply constraints to demand constraints, and the credit demand in Q3 is expected to remain weak, and the probability of a significant recovery is low, and the credit growth rate is expected to still have room for decline. As we enter a new round of policy window from July to August, we expect the probability of the central bank cutting interest rates to stabilize growth remains high. It is expected that in the context of high interest rate cut expectations + high probability of interest rate cuts, the bond market will be in a state of strong resilience in July and August, and the response to negative factors such as stable growth policies will be relatively dull, and long-term bond yields are expected to still have room to fall.

What is the impact of the central bank's borrowing of treasury bonds on the bond market? Borrowing Stage: Does the Central Bank Need to Provide Pledge? If pledge is required in the subsequent central bank bond borrowing mechanism, a certain amount of bonds or a certain amount of cash can be selected as pledge. (1) If the bonds held by the central bank are "exchanged for bonds", it is not expected to have an impact on liquidity; (2) If a certain amount of cash is used as collateral, or part of the liquidity is put into the market first, so as to form a certain hedge against the liquidity recovery in the subsequent selling stage (the central bank will return the cash bonds and the primary dealer will return the margin), it will be more beneficial to maintain the stability of the capital in the short term, and pay attention to the choice of the follow-up borrowing mechanism.

Sell stage: recovery liquidity + yield guidance. First, the process of selling cash bonds will recover the base currency, which may have a certain impact on the capital side, and pay attention to the scale of the central bank's operation. Second, the sale of cash bonds will further give full play to the guiding role of treasury bond yields as the market benchmark interest rate, and pay attention to the selection of the term of the operation target. Judging from the current operation of the central bank, 2.2% of the 10-year treasury bond and 2.4% of the 30-year treasury bond may be the lower limit of the central bank's expectations.

From the perspective of the borrowing model, there are two core types of bond lending and outright repo, but both of them face short-term constraints of the mechanism, and from the perspective of policy guidance, outright repo may be more adaptable.

In terms of the impact on the bond market, the signal significance of the current central bank's announcement of borrowing bonds may be greater than the actual operational significance, and the underlying logic of the bond bull has not changed, but the central bank's style switch may cause certain fluctuations in the short-term market.

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