Introduction: Black series futures rose sharply, the bond market was under pressure throughout the day, and Treasury bond futures opened lower and closed lower across the board!
On Monday, black series futures rose sharply, the bond market was under pressure throughout the day, and Treasury bond futures opened lower and closed lower across the board. The main force T1709 of 10-year Treasury bond futures dropped by 0.37%. The main 5-year Treasury bond futures TF1709 dropped by 0.2%, both hitting their lowest levels since May 26.
This round of the black series’ movement has truly surprised the market. Some traders said that the recent significant increase in domestic commodity prices has raised concerns in the market that inflation may rise again in the future, leading to a gradual tightening of monetary policy. Market sentiment is not good. There was a slight panic in the market on Monday. Apart from commodity futures, no other influencing factors could be found, and institutional sentiment was relatively cautious.
Regarding the reasons for the price increase, the market’s answer is very clear: supply constraints + increased demand. On the supply side, due to environmental protection inspections and capacity reduction, the output of steel varieties has been restricted, and the domestic inventory of steel varieties has remained at a low level for a long time. On the demand side, Ren Zeping from Founder Securities, a supporter of the “new cycle”, believes that in the third quarter, domestic economic demand was resilient, and the pressure of capacity clearance and environmental protection pushed up cyclical products.
In terms of liquidity, at the end of July, due to the tax payment and reserve requirement ratio payment factors, the short-term pressure on the money supply rose. The central bank accordingly increased the open market injection to offset it. After crossing the month, the liquidity tended to stabilize. Overall, in July, under the care of the central bank, the liquidity situation was more stable than market expectations. Shenwan Hongyuan’s macro research report suggests that in August, there were relatively few external shock factors, and the overall liquidity situation remained calm. The central bank may gradually withdraw the liquidity released during the previous stability maintenance period, shifting from “filling the valley” to “shaving the peak”.
Judging from the current economic fundamentals, demand remains very stable. If the central bank eases liquidity in the third quarter, Tang Yue, an analyst at Xingzheng Fixed Income, believes that the downward pressure on the economy in the fourth quarter will continue to ease.
It is worth noting that although the increase in commodity prices is more due to the contraction on the supply side, the prerequisite remains that the liquidity environment of the real economy remains stable and total demand is stable. Therefore, if the monetary and credit environment is stable, the firmness of commodity prices may exceed expectations. If enterprises start to replenish inventories under the influence of prices, The fundamental pressure on the bond market will be relatively significant in the medium term.
In terms of regulatory policies, judging from the policy tone conveyed at the financial work conference and other important meetings, the policy tone is likely to remain tight.
Tang Yue also pointed out that financial regulation is unlikely to have ended, and the policy has strengthened the expression of deleveraging in the real economy. This essentially means the following three points for the bond market:
The deleveraging of financial institutions has no end. Although the central bank will maintain the stability of monetary policy, this is not intended to leverage up financial institutions. The liquidity environment will still fluctuate.
2) The advancement of deleveraging in the real economy is detrimental to the credit market and is likely to reprice credit risks. The current situation of low credit spreads is likely to be unsustainable.
In the medium and long term, due to the advancement of measures such as strict financial regulation and deleveraging of the real economy (including the real estate market and local government debt, etc.), total demand will face downward pressure, and the risk appetite of financial institutions will also decline. This will provide a very favorable support for the strengthening of the bond market.
Despite the stability of monetary policy, the liquidity shock may not have ended yet. With the “real economy deleveraging and credit risk repricing”, in the coming period, market uncertainty is increasing, and the fluctuations in the bond market may be significantly magnified. In the short term, it may be due to the revision of fundamentals and expectations of loose liquidity that the momentum for the yield of interest rate bonds to fall is insufficient, and it may even fluctuate upward. However, in the future, it may be necessary to pay attention to the possibility of the widening of credit spreads and the rebound of credit bond yields caused by factors such as strong financial regulation and the deleveraging of the real economy.
However, with the implementation of strict financial regulation and the manifestation of the effects of policy-driven deleveraging of the real economy, the bond market may truly embrace considerable opportunities.