In just two days, the bond market experienced a roller coaster ride: on September 24th, Treasury futures closed across the board with declines, with the 30-year benchmark contract falling by 0.99% and the 10-year benchmark contract falling by 0.24%, marking the largest drop in over a month for both.
However, by September 25th, Treasury futures closed with a collective increase, with the 30-year benchmark contract rising by 0.31% and the 10-year benchmark contract rising by 0.29%.
The main influencing factor was the introduction of new policies. At yesterday's press conference held by the State Council Information Office, policies such as lowering the reserve requirement ratio, reducing policy interest rates, lowering existing mortgage interest rates, and unifying the minimum down payment ratio for mortgages were successively announced. How these will affect the bond market trend and whether the bond market can maintain a "bull market" in the fourth quarter are all highly watched by investors.
Despite the introduction of favorable policies, profit-taking sentiment led to adjustments in the bond market yesterday.
The press conference mentioned that the reserve requirement ratio will be lowered by 0.5 percentage points in the near future, providing about 1 trillion yuan in long-term liquidity to the financial market; depending on the state of market liquidity within this year, there may be a further reduction of the reserve requirement ratio by 0.25 to 0.5 percentage points at an appropriate time.
Advertisement
At the same time, the policy interest rate of the central bank, namely the 7-day reverse repo operation rate, was reduced by 0.2 percentage points, from the current 1.7% to 1.5%, also guiding the loan market报价利率 and deposit rates to move downward in sync.
Generally speaking, a reduction in the reserve requirement ratio is beneficial for financial institutions to release liquidity to the market, which helps to lower interest rates and push up bond prices, benefiting the bond market. However, on September 24th, Treasury futures faced significant adjustments. Why was that the case? Profit-taking sentiment and the "stock-bond seesaw" effect may be the main reasons.
A research report from Cinda Securities believes that this may be due to the rise in profit-taking motivation as the 10-year Treasury yield approached 2%, and the substantial rise in A-shares following the introduction of innovative tools supporting the equity market also brought emotional impact to the bond market.
A research report from Guosheng Securities also stated that after the interest rate cut was implemented, the bond market did not rise significantly due to the favorable interest rate cut, but instead experienced a profit-taking trend after the favorable policy was implemented. "The subsequent market trend depends on whether the profit-taking trend has ended, and on the other hand, it depends on the change in risk preference, that is, whether the continued rise in the stock market will bring enough pressure to the bond market."
This year, although the bond market has occasionally experienced fluctuations, the overall trend has been bullish. Currently, the yield on the 10-year Treasury has reached a low of 2.05%, and the yield on the 30-year Treasury has also remained at a low of 2.277%. In fact, since August, the bond market has been filled with profit-taking sentiment, and the policy has led to increased bond market volatility. In August, the scale of bond funds has shrunk. According to data released by the China Securities Investment Fund Association, at the end of August, the net value of bond funds was about 6.55 trillion yuan, a decrease of about 0.46 trillion yuan compared to about 7.01 trillion yuan at the end of July.The bull steepening trend in the bond market may continue in the fourth quarter, with the economic fundamentals becoming the anchor point for the bond market.
However, after a brief adjustment, the bond market began to warm up again on September 25. In the short term, considering the Federal Reserve's interest rate cut and the latest series of policies released, the bull market in bonds is still worth looking forward to.
CICC's research report believes that there is still room for the central bank to follow up with interest rate cuts, especially if the endogenous demand repair in the fourth quarter is still slow and the confidence of the real economy is difficult to boost. The central bank may not rule out further increasing the intensity of interest rate cuts to stimulate the activity of funds and provide a good monetary environment for the stable rise of prices. Therefore, the main line of the bond market in the fourth quarter may still revolve around the money market and short-term interest rates. The interest rates in the money market are expected to usher in a large-scale supplementary reduction, which will open up the downward space for medium and short-term interest rates. Compared with long-term bonds, short-term bonds still have a certain safety cushion, and the bull steepening trend in the bond market may continue.
Huabao Securities' research report also believes that considering that the Federal Reserve will continue to cut interest rates this year, and there is still room for domestic reserve requirement ratio cuts and interest rate cuts, the downward trend of interest rates and the bond bull trend may not have ended.
From a longer-term perspective, economic fundamentals may be an important factor affecting the long-term trend of the bond market.
Zheshang Securities' research report stated that the short-term bond market may face the pressure of profit-taking and adjustment, and it is expected that the upper limit of this time's 10-year national debt interest rate adjustment may be 2.07%-2.10%. In the medium and long term, the yield on national debt should be determined by the market, and the bond market trading logic based on the economic fundamentals as the anchor point may once again become the main melody of the market. Considering that after the reserve requirement ratio cut and interest rate cut at the end of September, there is still room for reserve requirement ratio cuts and interest rate cuts in the fourth quarter, the probability of the 10-year national debt interest rate effectively breaking through 2.0% continues to increase, and the low point of the 10-year national debt interest rate this year may be expected to approach 1.8%.
Leave A Reply