Today, Yang Ma made a bombshell news.
Then immediately someone on the Knowledge Planet asked me how to understand this matter.
So I'm going to expand on how to judge the intentions of the central bank. Everyone has probably heard the phrase "color is emptiness". Let's make a change to it, called:
Borrowing is emptiness
This method is my originality, and you can apply it to all financial products.
For example, if the central bank wants to borrow treasury bonds today, then it is necessary to short treasury bonds.
Another example is margin trading in a stock account.
Financing, that is, borrowing money, then it is shorting money. That is, the currency falls relative to the stock, and the stock rises relative to the currency.
Securities borrowing and lending is borrowing stocks, then it is shorting stocks, that is, stocks fall relative to the currency, and the currency rises relative to the stock.
Another example is borrowing money to buy a house, which is also a short currency, which is a long property relative to the currency (the short side must have more opponents, so shorting the currency is long real estate). We can also call it debt expansion, or balance sheet expansion (the simultaneous expansion of assets and debt, which is borrowing).
Conversely, a balance sheet shrinkage, or balance sheet recession, is to be bearish on property and bullish on currencies.
So, just keep one thing in mind.
Whenever someone or an institution wants to borrow something, it is to short something.
At the beginning of the article, if the central bank wants to borrow treasury bonds, it is necessary to short treasury bonds. So as soon as the news from the central bank came out, the bond market immediately plummeted, because everyone knew that if you were going to short, there would be funds to run away in advance, which suppressed bond prices.
Everyone should understand by now.
So now the second question is, why do central banks short their own Treasury bonds?
Because shorting Treasury bonds is long yields.
For example, for a $100 bond, the 10% interest rate is $110 to maturity.
If I short a $100 bond to $90, the yield is 20%+ (20/90) because the maturity price remains the same;
If you short a $100 bond to $80, then the bond interest rate is 30%+(30/80);
Therefore, shorting Treasury bonds is to raise Treasury yields.
In fact, the central bank has shouted countless times about the matter of yields, trying to stop the rise in bond prices. But the market has been betting on lower interest rates.
The so-called bet on the decline of interest rates is to bet on the rise of bond prices, that is, the bull market in the bond market. In recent years, although the stock market is average, the bond market has been bullish.
However, since the trader has shouted many times, I don't recommend being the trader's opponent, probably a few days ago on the knowledge planet, someone also asked me, saying when did Yang Ma sell treasury bonds to actually intervene?
I replied that I would intervene verbally first, and then I would actually intervene if it really didn't work. It turned out that it was only a week, and the central bank came for real.
Therefore, we have always been a forerunner on the knowledge planet, warning of risks in advance. Although the bond market is slow to make money, it is very fast to lose money. Especially the kind of long-term national debt.
But in the end, we still have to remind us that this time Yang Ma did not take out her own treasury bonds to sell, because she did not have many treasury bonds. Instead, it is borrowing Treasury bonds to sell, and as we all know, there is interest to be paid on securities borrowing and lending.
Therefore, generally speaking, after an institution borrows and lends securities short, it will become a potential long in the future. Because he has to buy back the securities at some point and then return them to the lender.
But I don't think this applies to the central bank, because she has terminal credit, and her counterparties to borrow treasury bonds, that is, primary dealers, are mainly large central enterprises such as the big four banks, and the controlling shareholder of the big four banks is the Ministry of Finance.
So you can also understand that this kind of borrowing is nominal, in fact, it is the trader's left pocket to the right pocket. As long as the market does not move in the direction of intervention, the central bank can never buy back after selling. That is, this kind of borrowing can be indefinite, until the bond market encounters the next cycle, that is, when the bear market, the central bank can buy back the treasury bonds again to go long in the bond market, and then return them to the four major banks.
Of course, in the end, we still have to mention that the central mother is also helpless now, boosting the yield of treasury bonds, on the one hand, it is worried that banks will buy such expensive bonds now, and once the interest rate rises in the future, it will fall into losses, which is also a lesson for Silicon Valley Bank.
On the other hand, the yield of government bonds is the anchor, and boosting the yield of government bonds is to boost the exchange rate.
Regarding the trend of the exchange rate, I see that the State Administration of Foreign Exchange has released the latest balance of payments statement on June 28, in which the three main factors affecting the trend of the exchange rate are not too optimistic. Students of the planet can pay attention.
Yang Ma's intervention is contrary to the current market bets, for elephant fights, we can just watch the battle from the sidelines. Although the intervention may cause the Treasury bonds to fall, giving speculative funds another opportunity to buy, I personally do not recommend being a central bank counterparty.
Yu Zhi said that he should not take risks, and Yu Qing said that he firmly stood on the side of the country.
Postscript:
After the news came out in the afternoon, I saw some self-media saying that the central bank's borrowing of treasury bonds was unanchored money printing, and I don't know if they really don't understand it or it's bad.
Selling treasury bonds and recovering liquidity is obviously a reverse QE action of water collection, which can even be explained as water release. Anyway, for them, any incident can be interpreted as a release of water.
But on the other hand, perhaps it is precisely because there are too many misleading voices in the market that the leek plate is huge, which will be the key to our easy profit.