This article is edited by China Merchants's solid collection team, "the liquidity of low-grade city bond investment tends to" dry up ".Huatai Macro Li Chao team"after that, contractors focus on liquidity risk or credit contraction? "

Core viewpoints

Huatai Macro Li Chao team believes that:From the disposal of the contractor bank to the present, the market liquidity is generally stable, the structural problem of short-term liquidity is gradually solved, and the high probability will not become the main risk point in the future. The central bank has a difficult trade-off between preventing systemic financial risk and preventing moral hazard. At present, the overall systemic risk is still relatively controllable, but the most important thing in the future is to pay attention to credit contraction.

It is also considered that after the contractor incident, the limitation of the debt end of small and medium-sized banks will inevitably lead to asset-side adjustment, the financing of small and micro private enterprises will be more difficult, at the same time, the risk preference of non-banks will decline, and the difficulty of bond disposal will be superimposed. There may be a vicious circle of more corporate defaults, worsening liquidity of medium and low-rated credit bonds, and increasing financing difficulties in the primary market. In the future, we should focus on the credit spread and the growth rate of social finance, as well as the coping strategies of government departments.

China Merchants's fixed collection team believes that:After the contractor bank incident, the "butterfly effect" triggered by liquidity stratification has not stopped, the first-level structural "cooling", the secondary allocation moved to the short-end industrial debt, all point to the gradually strong defensive mentality.

In fact, the policy side frequently protects the market in the short term in order to prevent the consistent behavior of cross-half-year lending from triggering system risk, but in the medium term, the reconstruction of the value-at-risk system at the debt end of small and medium-sized banks continues, and the tail risk of the non-bank system is only suspended, not eliminated. The shrinking of structured products and the decline of small and medium-sized banks' support for small and medium-sized enterprises may become the path to expand the credit risk of micro-enterprises.

I. the overall liquidity of the contractor bank has been stable since its disposal.

When taking over the contractor Bank, the people's Bank of China promised a variety of means to protect liquidity. Since June, the central bank has carried out a total of 15 reverse repurchase operations, with a total investment of 825 billion yuan. After the hedging repurchase expired at 795 billion yuan, the central bank achieved a net investment of 30 billion yuan, helping institutions to cross seasons smoothly. Last week, the central bank operated a reverse repurchase of 340 billion yuan, with a maturity of 55 billion, with a cumulative net liquidity of 285 billion. On June 19, the central bank exceeded its quota for the expiration of reverse repurchase and MLF on the same day, with a net liquidity of 65 billion yuan in a single day.

After the outbreak of the contractor bank incident, the market was worried about breaking the risk exposure of interbank exchange and small and medium-sized banks, resulting in tighter risk appetite of interbank institutions and stricter screening of counterparties and pledged coupons, resulting in limited financing and high costs of some small and medium-sized banks, which has become the main driver of liquidity stratification in the near future.

Although the highest interest rates of R001 and R007 have fallen, and the financing pressure of non-banks has been partially alleviated, there are still a number of small and medium-sized non-bank institutions with liquidity problems, and liquidity stratification continues.

II. The problem of short-term structural liquidity is gradually being solved.

In China's previous capital chain of "central bank-large commercial banks-small and medium-sized banks-non-bank institutions", large commercial banks contributed capital to small and medium-sized banks in the form of interbank lending or buying interbank deposit certificates. Non-bank institutions obtain short-term leveraged funds from banks through buybacks.

While the contractor Bank incident broke the just-exchanged expectation, some poorly qualified small and medium-sized banks faced the liquidity impact of interbank financing difficulties, and the selling pressure of high liquidity assets and interest rate bonds increased. Due to the difficulties in obtaining funds from small and medium-sized banks, the liquidity transmission from small and medium-sized banks to non-banks is not smooth, and the credit rating demand for collateral is improved.

Some of them are highly leveraged, so it is difficult for non-bank institutions that hold low-and medium-grade credit bonds to obtain liquidity directly from banks in the short term. There is even an one-size-fits-all situation in some markets, with non-banking institutions unable to obtain funds at any level of interest rates.

In order to prevent risk transmission, the central bank and the Securities Regulatory Commission mainly dredge short-term structural liquidity problems through the following two measures:

First, the liquidity of small and medium-sized banks has been temporarily alleviated by means of re-loan, rediscount, standing loan convenience and other tools.

Second, small and medium-sized non-bank institutions gradually release liquidity through large securities firms. Large commercial banks encourage financing from large securities firms, which will partially replace small and medium-sized banks and expand the financing of small and medium-sized non-bank institutions. Huatai Macro Li Chao team believes that the central bank and regulators deal with the liquidity impact of the contractor bank incident in a timely manner, the structural problem of short-term liquidity is gradually resolved, and it is likely that it will not become a major risk point in the future.

Since June 19, the maturity yield of interbank certificates of deposit has fallen sharply, and liquidity problems are alleviating, but the spread between ratings of interbank certificates of deposit remains high, indicating that structural problems still exist.

三、There may be a changing trend in the behavior of financial institutions, beware of credit contraction

Under the premise of a high degree of convergence in the behavior of investors in the bond market, once the market risk appetite generally goes down, the liquidity of the secondary market may shrink rapidly, especially the liquidity of low-rated credit bonds may be lost.

The widening spread of low-rating credit in the secondary market may form a negative transmission to the primary market, and it may be more difficult for small and micro enterprises to issue bonds, as shown by the upward interest rate and the declining willingness of enterprises to issue bonds.

The issuance of inter-bank certificates of deposit in the bond market has gradually peaked and declined since the beginning of 2018. Huatai Macro Li Chao team believes that after the contractor incident, the supply and demand of inter-bank certificates of deposit may show a further downward trend, which is conducive to regulators to control liquidity risk, but the limitation of the debt side of the bank will inevitably lead to the adjustment of its asset side.

Small and medium-sized banks are an important source of funds to support small and medium-sized enterprises and private enterprises. once it is more difficult for small and medium-sized commercial banks to obtain liabilities, resulting in the adjustment of their assets, it will be more difficult for small and micro private enterprises to obtain financing. As it continues to evolve, there may be a vicious circle of more corporate defaults and further downward risk preference of financial institutions for the allocation of medium and low-rated credit bonds.

China Merchants's fixed collection team believes that:The issuer is willing, but the demand side is "ruthless". June should be the starting point for the recovery of refinancing, but unexpectedly there was forced deleveraging in the second stage, and the improvement of net financing was slow. In vertical comparison, the maturity of credit bonds in June is close to 117 billion, which is at a high level, and the financing demands of issuers are not weak, but the crux of the problem lies in the demand side, which is reflected in two aspects:

First, the pressure on the continuation of non-bank stock leverage suddenly appears, weakening the enthusiasm for new debt subscription.

Second, small and medium-sized banks are too busy to take care of themselves because of liquidity problems, so it is difficult to say new credit debt allocation. Especially for generally qualified urban investment bonds and private enterprise bonds, there may be problems caused by the explosion of structured products, which further suppresses the demand of institutions to increase their holdings.

The refinancing pressure of private enterprise debt and low-grade varieties may evolve as a result of two results:

First, the refinancing pressure of private enterprises may be cashed in the premium (raising the face value to subsidize the expected default losses faced by investors). However, the National standing Committee has made it clear that the financing costs of private enterprises need to be reduced by another percentage point this year. If private enterprise debt continues to fall short of expectations, it will be more difficult to achieve the cost reduction target.

Second, some low-level subjects face the risk of "explosion" of structured products, which may spread to the same qualified subjects. At that time, the second level will produce negative feedback to the first level, and the continuation of debt may be difficult to avoid pressure. For the weak qualified subjects who prefer "short-term borrowing and long-term use" and non-standard financing, risk exposure may be further accelerated.

China Merchants's fixed collection team observedTwo characteristics of second-tier transaction:

The main results are as follows: 1) the short-end varieties lead the transaction recovery, which is related to the short-end melting, while the medium-and long-end varieties continue to cool down.

2) the pain points of low-grade urban investment bonds were exposed, and the proportion of transactions of AA and AA- urban investment bonds dropped to a new low of less than 19% for the year.

In essence, after the contractor Bank incident, the following chain has been formed: liquidity risk of small and medium-sized banks → pledge into the treasury qualification to enhance the difficulty of → non-bank lending increases the risk exposure of → leverage. During this period, most of the product households that adopt the sinking qualification + leverage strategy are more difficult to continue leverage, and after the repurchase default, they can only deal with passively "chopping assets". Discount coupons emerge one after another, which undoubtedly have a great impact on the weak qualification individual coupons which are lack of counterpart. Low-grade cities invest in bonds, "confidence + faith" is lost at the same time. With the lack of protection of superimposed spreads, it is inevitable that there will be a sharp reduction in the change of hands.

In the midst of all the plants and trees, the secondary configuration structure rushed to the short-end industrial debt. Screening yields down more than 20bp active coupons, industrial bonds almost become the "leading role". At the same time, individual coupons within one year have become the consistent preference of the market, and there are very few medium-and long-end coupons. In terms of industry distribution, short financing "large households" public utilities, transportation and integration ranked in the top three. The reason why we are looking for high-quality bonds in short-end industrial bonds, rather than urban investment bonds, is mainly due to the low spread of the latter and the slightly "chicken rib" of performance-to-price ratio.