Qu Qing： Why can’t bonds rise？
Qu Qing: Why can’t bonds rise?
Fundamentally speaking, economic data is sluggish; financial markets in overseas markets have undergone drastic changes, and interest rates in mainstream countries have gradually declined. These factors are conducive to the decline in domestic interest rates, but the domestic bond market still maintains narrow fluctuations. Why is the bond market not rising?
Generally speaking, the current level of yield is a comprehensive response to various factors that will affect the bond market at present or even in the future.
Then at the same time, there is a factor that the interest rate of the bond market has fallen.
First, although the economy is sluggish, the pressure of inflation is not small, so the risk of stagnation is increasing.
If it stagnates, I am afraid there will be pressure on all types of assets.
Economic data remains sluggish, which is an indisputable fact.
The current economic downturn is mainly due to the rapid expansion of credit in the first quarter, the credit expansion has slowed down, and natural economic growth has declined.
In addition, the intensification of trade frictions in May also increased the market’s pessimistic expectations.
However, we must also note that the market’s economic expectations at the end of last year were more pessimistic than it is now, but after the expansion of credit in the first quarter, China’s economy was still resilient.
Moreover, from the high-frequency data, the very sluggish cars in the early period have improved; the positive impact of tax cuts on the Chinese economy has just begun; with the issuance of local debt, infrastructure is also committed to boosting the economy.
Therefore, we believe that despite the economic downturn, the merger is not more pessimistic than at the end of last year, but that the market’s economic downturn has also begun to cause aesthetic fatigue.
Unless economic growth recovers, it will be difficult to change the direction of monetary policy and it will be difficult to trigger market confidence.
Inflation pressures continue to rise. Everyone has their own feelings. Indeed, many things are now rising in price, and these things are even economically sluggish. However, due to supply problems, prices will continue to rise.
In addition, pressures such as trade frictions and the devaluation of the yuan will still cause the market to be more worried about inflation.
We have also done calculations, and the CPI is likely to exceed 3% in the second to third quarter of this year.
Therefore, the market began to worry about the possibility of stagnation in the future.
We have also experienced stagflation in the past.
At this stage, monetary policy is very difficult, because if you want to focus on the economy, monetary policy should be relaxed; but if you focus on inflation, monetary policy should not be too loose.
In general, all types of assets do not perform particularly well, and cash may be slightly better.
Second, is the overseas market expected to be too full?
The recent fluctuations in overseas markets are indeed relatively large, and the yields of mainstream countries have continued to decline.
Based on the expectations of the interest rate cuts calculated by the price of Treasury futures, the market expects the Fed to cut interest rates twice this year.
The question is whether this expectation is too full?
From the current point of view, although the US economy experienced high growth in the first quarter driven by inventory and net exports, the market considered it unsustainable, but it did not immediately enter a recession.
In addition, trade frictions will increase domestic inflation.
Therefore, market expectations have come to the forefront of reality.
If the U.S. economy does not decline immediately, the current market rate cut expectation will certainly be too full.
Therefore, it is still uncertain whether the US Treasury bond interest rate can stand in this position.
In addition, we have always had a decoupling of the Chinese and overseas markets in the past two years, and in particular, monetary policy has become more independent.
The United Nations Air Force has also stated that China’s monetary policy is still determined by domestic fundamentals.
When the Air Force raised interest rates in the United States, we did not follow them; in the future, we may not follow them even if we cut interest rates overseas.
Third, the interbank cash just broke, which may be the most important factor affecting the bond market.
The contractor’s incident last week may have far-reaching and long-term effects, which not only means that financial supervision is further strengthened, but more importantly, the duration of general supervision will be longer.
The non-standard supervision in 2013 caused a shortage of money, and the financial supervision in 2017 also caused a shortage of funds.
In general, the market will increase when the regulation becomes serious.
In fact, this is also a process of releasing risks, which will definitely cause market fluctuations.
However, it is precisely the proactive release of risks that avoids future market fluctuations.
In the short term, the shrinking of interbank business will also have an impact on the liquidity of small and medium banks.In fact, in recent years, many small and medium banks have relied heavily on interbank debt to solve their liquidity problems.
According to statistics, a large number of inter-bank certificates of deposit expired in June. If the market’s concerns about small and medium-sized banks’ inter-bank certificates of deposit cannot be effectively alleviated, it may impact market liquidity.
During periods of tight liquidity, such as last week, the transition will also invest in liquidity to protect the market.
However, the term of the 北京夜生活网 funds issued by the budget is short, and it does not exactly match the term of the interbank deposit certificate.
As long as the small and medium-sized banks are short of funds, they will change their investment behavior.
Last week, the primary market for interest rate debt has cooled somewhat. Although theoretically, interbank debt is not used for the allocation of interest rate debt, once the lack of interbank resistance, it will exacerbate the funding gap of small and medium banks and change their asset allocation.
Even more extreme is that once funds are tight, some institutions will first sell liquid assets, such as interest rate bonds, in exchange for liquidity.
In fact, the initial stage of credit risk releases in the past has taken the form of liquidity risk releases.
To sum up, the basic surface, the economic downturn, rising inflation pressure, and market concerns about stagnation are intensifying. This is the main trend that has the potential to affect the bond market.
If this lead is established, there will be pressure on all types of assets.
The clue in the short term is that the contractor’s matter means that the industry has just cashed in a breakthrough, and market concerns about the liquidity of small and medium banks may affect the bond market.
Therefore, these factors may be the first to prevent bond market growth.
Of course, if liquidity pressures ease in the future, the decline in market risk appetite will also benefit interest rate debt.
In addition, institutions have recently been concerned about how their business will grow in the future.
The financial industry has indeed experienced some problems after encouraging innovation and rapid development in the past few years.
Therefore, the strengthening of financial supervision is an inevitable trend, which is also for the more stable development of the financial industry.
Of course, what our practitioners have to face is that many businesses in the past are unsustainable, and future businesses are more inclined to return to their origins.
What is the origin?
Serving the real economy.
The financial market has done a good job of bond investment, and has done a good job of liquidity management. The asset management department has gradually implemented the requirements of the new asset management regulations.
This article first appeared on the WeChat public account: Quqing Bond Forum.