Since April 13, the capital market interest rate has opened a wave of downward market, in which dr001 has dropped to 1.2-1.3% and dr007 has dropped to around 1.5%. Our analysis is as follows:
Since 2021, dr001 has operated the logic of “stability as one”. From March 2021, dr001 basically operates in the range of 1.6-2.2%, and the central value is about 2%. When dr001 breaks through the upper and lower limits periodically, it will “correct the deviation” within 1-2 trading days. There are two major driving factors for the maintenance of the interest rate corridor mechanism: first, the liquidity environment has been relatively friendly, and the market is optimistic about the central bank’s expectation of maintaining the stability of interest rates in the money market. Second, it may be related to the regulation of the lending behavior of large banks, that is, the central bank can maintain the Dr interest rate within the desired range through fine regulation of large banks, which plays a role in stabilizing the interest rate corridor.
Why has the overnight interest rate fallen sharply since mid April? The overnight interest rate dropped sharply from the “hidden interest rate corridor”, which was caused by the “resonance” between the supply and demand of funds. From the supply side, driven by the reduction of the reserve requirement and the profits handed over by the central bank, a transmission chain of “loose liquidity environment → the central bank will reduce the reserve requirement on April 25 to release funds → more optimistic about future expectations → accelerating the financing of funds” has been formed. From the demand side, at present, the problem of insufficient credit demand is more common. Superimposed on the demand disturbed by the epidemic in the Yangtze River Delta, banks have faced serious pressure of “asset shortage” since April, resulting in more prominent capital deposition in the inter-bank market. In addition, the upcoming RRR reduction and optimistic expectations for future liquidity have made banks start to significantly reduce lending and avoid excessive redundancy. In order to maintain the “overnight rolling and short-term allocation” model, the broad fund needs to ensure a certain interest margin between liabilities and assets, and has a strong willingness to reduce the quotation of overnight interest rates.
How long can the low overnight interest rate market last? It is expected that the low overnight interest rate market is expected to continue in April and early May: first, the subsequent liquidity supply will be more abundant and is expected to continue to be friendly. The total release of funds from RRR reduction + profits handed over by the central bank is nearly 1.5 trillion, which is significantly higher than the effect of RRR reduction by 0.5 percentage points. Second, the phenomenon of insufficient credit demand is difficult to be substantially alleviated in the short term. Under the framework of structural liquidity shortage, the accumulation of funds in the inter-bank market continues. In order to truly realize the return of capital interest rate to the “hidden corridor” range again, three preconditions are needed: first, the central bank’s basic money supply will be reduced in stages to gradually recover the funds deposited in the inter-bank market. Second, credit lending is renewed, which continues to consume liquidity and restore the operating mechanism of the structural liquidity shortage framework. Third, the pace of government bond issuance was further accelerated. However, at present, whether these three preconditions can be realized remains to be further observed in May.
Investment advice. First of all, it is not a necessary condition for the capital interest rate to be phased out of the interest rate corridor. The game space is limited. The game space for subsequent interest rate cuts through “speculation” is not large. The epidemic has an impact on both supply and demand. Under the supply shock, the constraint of “stabilizing prices” is large, and the demand side stimulus is likely to be after the supply recovers; However, the standard reduction of 0.25 percentage points provides a “new yardstick” for the follow-up in-depth investment of medium and long-term funds, which will shorten the cycle of standard reduction. Secondly, leverage can continue to be maintained in the short term, but we need to be careful that after the marginal recovery of credit from May to June, the overnight interest rate returns to the “hidden corridor” center, and the epidemic evolution is an important variable. Especially in mid May, the Politburo meeting at the end of April is likely to put forward more measures to stabilize economic growth, superimpose the dividend disturbance of central enterprises, the epidemic in Shanghai may be better controlled, and the overnight interest rate returns to the “hidden corridor” center, resulting in the rise of short-end interest rate and the “flattening” of yield curve step by step. Finally, the long-term interest rate is expected to be gradually adjusted in place, and the allocation cost performance begins to improve. Since March, based on the demand of cashing Q1 performance, some banks have cashed the floating profits of interest rate debt assets held in the past. In addition, the interest rate was at a low level at that time, forming a group of small “selling pressure”. At present, the yield of 10Y treasury bonds has rebounded to around 2.85%, while the interest rate of newly issued corporate loans has dropped to around 4.4% by the end of March, and the cost performance of EVA is significantly weaker than that of bond assets. Banks are expected to increase investment in interest rate bonds again, and the release of allocation demand will play an interest rate stabilizer effect.
Risk tip: the credit supply is high, the continuity is not strong, and the Federal Reserve raises interest rates and shrinks the table beyond expectations.
