Driven by the favorable “interest rate cut”, the overall yield of credit bonds fell this week.
Analysts believe that in the current low interest rate environment, given that most institutions still need to make income and the alternative assets are relatively limited, the refocusing of “qualification sinking” in the future credit strategy is expected to be a high probability event. Of course, the trigger of the “reversal point” of the strategy needs to be reconfirmed by the data after the implementation of the policy.
continuous risk clearing
It can be seen that since 2014, various institutions dominated by bond funds have experienced two rounds of “credit allocation reduction”. The first round began with the “wave of default”. All institutions reduced their positions rapidly and greatly. The funds mainly realized “risk avoidance” through credit allocation reduction, raising credit level and shortening duration; The second round of credit position adjustment is the consistent investment behavior of the slow convergence of the market driven by the “deleveraging” policy.
In the “deleveraging” environment, the financing channels of private enterprises took the lead in shrinking, and the risk was cleared faster, which also led to the surge of default amount in the bond market in recent years.
According to the statistics of CSI PENGYUAN, 31 defaulting entities and 173 defaulting bonds were added in China in 2021, an increase of 6.1% over the previous year. Among them, 25 defaulted bonds were newly added in the fourth quarter, with a cumulative default amount of about RMB 12.681 billion, involving 16 Issuers (8 were newly defaulted subjects and 20 related defaulted bonds, accounting for about 80%). In the fourth quarter, there were two new defaulters, accounting for 50%, up 17% from the previous quarter.
Moreover, in terms of issuer types, there were as many as 25 private enterprises among the new defaulting subjects in 2021, accounting for 80.6%, an increase of 15% over 2020.
The latest bond market survey conducted by China International Capital Corporation Limited(601995) shows that 40% of the respondents chose “frequent credit default events, impacting liquidity and leading to the re expansion of credit interest margin”, which can be seen from the market prudence.
It is worth mentioning that the outstanding pressure of private enterprise bonds in 2022 is still large.
According to the statistics of securities companies, among the issuers of non-financial credit bonds to be repaid in 2022, there are 293 private enterprises, accounting for 9.60%. The outstanding scale of private enterprise bonds is 504.586 billion yuan, involving 657 outstanding bonds. In addition, among the bonds to be repaid by private enterprises in 2022, the total scale of bonds with AA grade and below and without rating information was 141.267 billion yuan, accounting for 28%. The scale of stock bonds of private enterprises entering the resale period is 313.241 billion yuan, accounting for 13.74% of the credit bonds entering the resale period.
prominent features
Obviously, the risks of private enterprises continued to clear, superimposed on the frequent occurrence of defaults in the industrial sector, resulting in the capital beginning to migrate to the only “safe” urban investment sector. For a long time before that, except for the slight increase in the positions in comprehensive industries, the positions in industrial industries basically showed a trend of reduction – the reduction in the distribution of real estate and power grid was relatively prominent, while the proportion of urban investment bonds increased continuously.
The same is true for the primary issuance of bonds, and urban investment can be described as “taking the lead”. According to public data, 168 urban investment bonds were issued last week, with the scale increased by 14.19% over the previous value to 120.810 billion yuan, and the net financing amount was 52.22 billion yuan. As of January 16, 2022, the total scale of urban investment bonds during the duration has reached 11.95 trillion yuan.
“At present, for the sake of risk avoidance, institutional investors will pursue more certainty, which also makes their investment behavior more similar.” Ge Xiaoling, senior financial expert and managing director of BOCOM, said, “for example, the preference for low rated credit bonds has continued to decline, the credit interest margin has widened, and the premium rate of institutional group varieties has been compressed to a very low level.”
“We have also observed that at this stage, the ratings of key positions of various institutions are constantly improving – the proportion of AAA and AA + rated bonds has reached more than 80%, which has reached an all-time high, and there is little room for improvement.” China Securities Co.Ltd(601066) Zeng Yu, CO chief fixed income analyst of the securities research and development department, said, “in terms of duration, the high-energy strategy superimposes the downward interest rate. In view of the demand of institutions under the capital ‘Group’, after the sinking strategy is put on the shelf, lengthening the duration and adding bars have become the best way for the market to make up for income.”
In terms of the spreads of different levels of medium and short-term bonds, the term spreads of high-grade bonds are already very narrow, and there are several upside down situations in early 2021, which shows that under the high-energy strategy, the operation of prolongation has basically reached a more extreme state.
“At present, the ‘effective’ asset supply is becoming more and more difficult under the factors of ‘normalization’ of default, further improvement of institutional risk appetite, continuous pressure drop of industrial stock bonds, and increased valuation fluctuations caused by frequent window policies.” Zeng Yu judged, “Due to the prominent ‘clubbing’ behavior of funds and the deposition at the high-level and low-risk end, this will make the differentiation of credit bonds more prominent: on the one hand, it is the differentiation between industry and urban investment, on the other hand, it is the differentiation between urban investment regions. At the same time, the methods of increasing the return of credit bond investment such as duration and leverage will gradually approach the historical high or regulatory upper limit.”
strategy is facing adjustment
Many front-line traders believe that looking back, the refocusing of credit strategy on “qualification sinking” is actually a probability event. In the direction of qualification sinking, urban investment is still the mainstream choice.
After all, in the context of stricter institutional framework design for the management to implement the main responsibility and the improvement of local governments’ willingness to repay debts, the “integrity” probability of platforms in provincial regions will be improved in the future, which also provides a certain imagination space for the mining of district and county-level platforms.
“In terms of urban investment interest rate spread, the characteristics of ‘broad but not close’ can provide better risk compensation for qualification mining.” Zeng Yu also said, “of course, the entry time point and sinking range of market funds also depend on their own risk appetite threshold and the implementation progress and degree of the current policy of ‘wide credit’.”
In terms of the industrial sector, based on the judgment that “interest margin repair” is the main investment logic, combined with the high-energy strategy that should not sink too early, several institutions suggest that priority should be given to the real estate development sector with room for AAA main interest margin, as well as the sectors of automobile and auto parts, retail, agriculture, forestry, animal husbandry, sideline fisheries, etc, The priority is “automobile and auto parts > agriculture, forestry, animal husbandry, sideline fisheries > real estate development = retail”.
The reason is that the repair trend of the automobile sector is relatively strong and has appeared in the fourth quarter of 2021. At present, the interest differential point of AAA rated subjects in the industry is still high (with interest margin compression power), so we can focus on allocation opportunities; Although the agriculture, forestry, animal husbandry, sideline and fishery sector still needs to continue to confirm the extent and timely point of repair (from the first quarter to the second quarter of 2022), the overall certainty is also good.
As for the real estate market, although the relevant supporting policies are frequent, the expectation of substantial improvement in its fundamentals is not strong. The period of centralized cashing of overseas bonds has not passed. The market is waiting for further clearing brought by the next round of “stress test”. Based on the consideration of valuation fluctuation, it is suggested to “watch while walking”; In the retail sector, the repair is expected to be strong in 2022, but because the business models and sales products of various entities in the industry are quite different, the prosperity has certain differentiation characteristics, and the epidemic situation is repeatedly difficult to predict – the impact on contact consumption may still occur, so the uncertainty of industry trend repair remains, and the probability will show a pattern of differentiation and repair, Opportunities in the sector need to be implemented to the specific target.
In short, the credit bond investment in 2022 should avoid the time period with high sensitivity. It is more recommended to wait until the wide credit data signal is confirmed and the industry sales and cash flow data see the actual improvement before entering the layout, so as to ensure safety.
