After the festival, the bond market rose and the market expected a small probability of interest rate cuts
In the first week after the Spring Festival holiday, the bond market ushered in a bull market that exceeded expectations. Last week, the 10-year Treasury yield fell 2.76 basis points from 2.9219% to 2.8943%.
Before the Spring Festival, a number of policies that are beneficial to the economy have been released one after another, and the market expects that the bond market will fall due to the recovery of the economy. However, in the first week after the Spring Festival, the bond market did not fall as expected, but the bullish sentiment continued.
Analysts believe that under the “strong expectation” of economic recovery, the logic of the bond market’s bearishness may have been fully traded in advance, and the “seesaw effect of stocks and bonds” and the marginal loosening of funds dominated the trading market in the week after the holiday.
Bond market stronger than expected
Last week, the bond market came out of a wave of strong market. The yield on 10-year treasury bonds fell 2.76 basis points from 2.9219% to 2.8943%; the yield on 10-year CDB bonds fell 2.91 basis points from 3.0835% to 3.0544%. The closing price of the main 10-year treasury bond futures contract rose 0.66 yuan from 100.35 yuan to 100.355 yuan.
After the Spring Festival, the balance of funds remained tight. At the same time, the PMI data returned to the line of prosperity and decline, but the trend of the bond market was obviously stronger than expected. What is the reason behind it?
Abundant liquidity is one reason for the strength in the bond market. Although the central bank has withdrawn a large amount of liquidity, there has been no significant tightening of funds after the festival. Choice data shows that from January 28 to February 3, the DR001 interest rate fell by 42.7 basis points to 1.3%, DR007 fell by 16.3 basis points to 1.8%, and R001 fell by 34.0 basis points to 1.4%.
“Last week, the central bank had a clear orientation towards protecting liquidity, and the capital side maintained a stable state. Therefore, the market sentiment is good.” A trader said.
However, according to Jiang Peishan, chief fixed income analyst at Haitong Securities, the output demand data showed a weak improvement in the first week after the holiday, indicating that the subsequent economic recovery has yet to be verified. The pre-holiday recovery expectations are relatively sufficient, and the January PMI data did not significantly exceed expectations. Coupled with the departure of hedging orders after the festival, the strengthening of treasury bond futures and the warming of spot bonds, combined with factors such as the weakening of the stock market and the loosening of capital margins, the bond market ushered in a respite.
Mingming, the chief economist of CITIC Securities, also believes that considering that the fundamental data of January and February will be released in March, the actual data may not be able to cause a big shock in the bond market under the market’s strong expectations for a good start to credit. Shock, while interest rates trade pessimistic expectations before the release of the data, after the release of the data may be out of the bearish market.
In addition, in recent days, the allocation of credit bonds has become more and more obvious, which also supports the recovery of the bond market. Brokerage tracking data shows that the overall credit bond yield curve fell last week, except for the 3-year AAA, AA+, AA, and AA-rated bonds, which rose by 3, 2, 4, and 7 basis points respectively, and the rest all fell.
A bond fund manager revealed that at the beginning of the year, there are often allocation orders that enter the market first. Bonds are coupon assets, and the concept of early allocation and early benefits has always been there. The current entry point for short-duration credit bonds is appropriate.
Chances of rate cut lower
In the previous two months, the market had been expecting a strong interest rate cut, but this expectation fell through. Regarding the direction of the follow-up monetary policy, many industry insiders said that more structural monetary policies will be adopted throughout 2023 to precisely support the real economy. In the context of the gradual advancement of credit loosening, the probability of interest rate cuts in the short term is low.
Sun Binbin, chief fixed income analyst at Tianfeng Securities, believes that: First, macro policy needs to be combined with cross-cyclical and counter-cyclical adjustments, and policy authorities still cherish the normal macro-operation space. Secondly, from the perspective of necessity, the current PMI data point to a sharp rise in manufacturing and non-manufacturing expectations, and business confidence has picked up significantly; from the perspective of bill interest rates, the trend of bill interest rates has continued to rise since January, and new credit is expected to be strong. Therefore, it is not necessary to stabilize expectations and boost confidence through interest rate cuts.
“Finally, from the perspective of monetary policy effectiveness, the effectiveness of aggregate monetary policy is actually limited. It is expected that the central bank will strengthen the use of structural monetary policy tools and policy financial tools.” Sun Binbin said.
Qu Qing, general manager of the Investment Advisory Department of Huachuang Securities, also said that from the perspective of cherishing the space for monetary policy, the central bank will hesitate to cut interest rates. From an absolute level, my country’s benchmark interest rates, such as the 7-day reverse repurchase rate and MLF interest rate, are indeed not high, and the reserve requirement ratio has also dropped significantly from the previous high. Therefore, there is relatively little room for my country’s benchmark interest rate to decline.
“The central bank has placed more expectations on structural tools. Structural tools are more targeted and precise, and can also avoid the effect of ‘flooding’. If interest rates are to be lowered, it may also be reflected in structural tool interest rate cuts, such as A certain type of refinancing interest rate cut.” Qu Qing said.Return to Sohu to see more
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