With the realization of the biggest positive expectation in the previous market, the current bond yield fluctuated downward, and the interest rate of 10-year Treasury bond has reached around 2.74%.
Although there are still differences in the industry on whether this “interest rate cut” is the opening of the easing cycle or relative to the “rush” of the Federal Reserve, one thing is certain, that is, the probability of the reversal “inflection point” in the medium-term dimension of interest rate will be further delayed. Under the background of weak fundamentals, further relaxation of monetary policy and early allocation and early return of institutions, there is still an opportunity for the bond market in the first quarter, and the downward range of bond interest rate may be greater than market expectations.
more emotions continue to ferment
It can be seen that after the positive landing of the “interest rate cut”, the bond market interest rate generally fell. Among them, the interest rate curve of treasury bonds shows a “bull steep” pattern. The downward range of interest rate of 3-5-year varieties is about 3bp, and the downward range of interest rate of 10-year and above varieties is 1-2bp.
However, the disk also shows the profit stop demand of some institutions.
The reporter observed that there are several sources of the profit stop mentality, mainly including the band of small positions – Technical profit selling, the industry’s concern about the limited operation space of follow-up monetary policy (the MLF interest rate dropped 10bp slightly higher than the market expectation), and the prediction that the “inflection point” of steady growth will come in advance.
Qin Han, chief fixed income analyst of Guotai Junan Securities Co.Ltd(601211) securities, pointed out: “Technical profit stop is in line with the idea of making a band. The game band strategy is to find the expected level fluctuation for a certain event or data, and set the position of position, profit stop or loss stop in advance. Once the event or data is landed, it will strictly abide by the trading discipline and carry out relevant operations. Such band positions are generally not affected by the medium and long-term view, and may even be withdrawn from their own positions Send, selectively ‘see’ or ‘ignore’ the direction given by the incremental information. “
However, for the future performance, most institutions believe that there is no need to worry too much. After all, this interest rate cut is so “urgent”, which shows that the pressure of steady growth can not be underestimated. In other words, there is still support for the bond market.
“Considering the forward-looking indicators, the short-term credit in December 2021 has dragged down social finance. Although it is in line with the seasonal law, in combination with recent market observations, institutions may need to maintain a rational expectation for the ‘good start’ of financial data at the beginning of the year.” In Qin Han’s opinion, on the one hand, the bill market is facing supervision, and some urban and rural commercial banks may encounter the constraints of asset scale and deposit scale. On the other hand, the impulse of credit supply will be restricted by the mismatch between supply and demand. In terms of real estate and small and micro enterprises, one is “can’t let go” and the other is “dare not let go”.
In short, under the background that China’s demand contraction pressure still exists, the expected weakening needs to be reversed, the bottom of the real estate industry has not yet appeared, the consumption recovery is still difficult, and there are no signs of strength in fiscal and other policies, the good performance of the bond market is expected to continue.
More institutions predict that after the “interest rate cut”, the low yield of 10-year Treasury bonds will fall to about 2.65%.
short term accumulation of positive factors
Moreover, the relaxation of monetary policy is also worth looking forward to.
“The current relaxation of monetary policy can only create monetary conditions for steady growth and maintain market confidence, but this is far from enough.” Zhang Jiqiang, chief analyst of fixed income of Huatai Securities Co.Ltd(601688) Research Institute, said, “The economy is under potential growth, the vitality and confidence of micro entities are insufficient, inflation pressure, especially PPI, has entered the downward channel, house price constraints are no longer needed, even the bottom of the demand side, and the government bond interest rate needs to drop… We believe that there may be a game window for interest rate reduction in March and April after observing the effect of credit easing, economic growth and the results of the first round of local auction. In addition , structural policies such as carbon emission reduction, taking into account short-term and long-term objectives, steady growth and structural adjustment, are expected to run through the whole year. “
The latest bond market survey conducted by China International Capital Corporation Limited(601995) shows that about 90% of the respondents believe that the central bank will comprehensively reduce the reserve requirement more than once or twice this year. Among them, 47% of the respondents chose to reduce the reserve requirement “4 times or more”; 41% of investors chose “twice”; 5% of respondents chose “3 times”.
Obviously, under the background of still great downward pressure on China’s economy in 2022, the industry generally believes that policies need to increase support for the real economy, and a comprehensive RRR reduction may be a more desirable policy choice.
Back to the bond market level, focus on the changes of China’s treasury bond yield curve in the first half of 2022. According to the survey of China International Capital Corporation Limited(601995) , more than 50% of investors believe that there will be a “bull market” in the first half of 2022; 25% of investors believe that there will be a “bear market”; Another 25% of the respondents judged that the bond market would be dominated by a narrow range of shocks.
There is no doubt that for the development of the follow-up market, although various institutions have differences, they are still optimistic as a whole.
A number of front-line traders told reporters that under the background of weak fundamentals, further relaxation of monetary policy, early allocation and early return of institutions, the demand of the bond market in the first quarter will be stronger than supply. At that time, the downward range of bond interest rate may be greater than expected by the market, and the bond curve will show a state of “bull market steepening”.
adjustment or position increase opportunities
To sum up, in terms of the allocation of the bond market, what this round of positive profit taking and profit stopping should bring is the opportunity to adjust and increase positions.
According to the view from the research and Development Department of Dongfang Jincheng, there is still room for imagination in the follow-up monetary easing, which means that the downward cycle of interest rate has not ended. Although the central bank’s reduction of MLF interest rate will drive the LPR quotation downward, which will boost credit to a certain extent, considering that the credit environment of the urban investment platform has not been significantly loosened and the real estate demand is still shrinking, the credit expansion may still be limited in the short term, and the negative impact on the bond market will also be limited. Based on the judgment that the next monetary easing window will appear in the second quarter – the central bank may implement another RRR reduction from April to May. If house prices are still falling in the second quarter, it may implement another interest rate reduction. At that time, with the expected warming of further easing, the long-term interest rate will reopen the downward channel, and the interest rate may still be low.
“The certainty of the benefits of short-term easing has increased, and the policy is so ‘urgent’ to confirm the difficulty of stabilizing the economy, so the certainty of long-term bad has decreased.” Qin Han believes that “the turning point of the reversal in the medium-term dimension of interest rate will be further delayed. Considering the tangled mentality of the allocation sector anxiously waiting for adjustment at the beginning of the year, we suggest to deal with it with the mentality of ‘accumulating a small victory into a big victory’. The differences due to the best benefits and the short-term adjustment brought by the profit stop sector may be another better opportunity to increase positions.”
China International Capital Corporation Limited(601995) is more optimistic. It believes that the bond market investment can follow the strategy of “buying early and earning early”. At present, it is necessary to improve the leverage and duration in the first quarter as much as possible to provide a safety cushion for the annual earnings.
