Financial Services Association, March 13 (Editor Liu Chen) Yesterday, 30-year treasury bond futures staged a very standard “high dive”. Judging from the Japanese K-line, the opening of the market broke the 20-day EMA, falling for four days in a row. Active 30-year treasury bonds rose 7.2 bps in a single day yesterday, with more than 2,000 transactions, far exceeding the daily level. After the yield in the bond market reached an extremely low “no-man's land,” differences widened, and no progress was reached. After agricultural and commercial banks drastically reduced their holdings last week, they finally ushered in adjustments.

Judging from today's market conditions, the morning sentiment has not been fixed. At 13:30 p.m., active 10-year treasury bonds rose 1.5 bps, and active 30-year treasury bonds rose 3.7 bps. However, at around 2 p.m., cash notes suddenly turned downward. Market indicators may be affected by rumors of interest rate cuts, but this has not been confirmed.

Volatility intensifies, long and short, and anxious. Where will the bond market go?

Source: Wind, compiled by the Financial Association

In the middle of last week, agricultural and commercial banks reduced their holdings by 32.5 billion yuan, which may have been the trigger for the sharp decline

There was a “stampede” incident in the bond market yesterday. Treasury bond futures dived high, and 30-year cash bonds rose 7.2 bps in a single trading day. Industry insiders said bluntly that due to the long-term effect of amplifying interest rate risk, the ultra-long-term one-sided upward trend can be said to be very thrilling.

In the first two trading days of this week, active 30-year treasury bonds rose by a total of 11.2 bps. Among them, the volume on Tuesday unusually surpassed 2,000 transactions, and the main TL contract dropped to around 105 yuan last week. The 10-year term situation is slightly better, with a cumulative increase of 5.85 bps this week. The main T contract fell by about 0.21 yuan compared to last Friday.

The market is in confusion. The inflection point of debt has arrived. Will the bond market trend change or be a phased adjustment?

Industry traders said that the pressure to take profit on the long and ultra-long end has continued to accumulate recently. After both broke the key points of 2.3% and 2.5%, it was even “too high and cold”. The trading market was afraid to advance further, and the price spread that was too narrow was unattractive to the allocation market. The central bank's investigation into agricultural and commercial bank bond transactions may have been a trigger. Judging from transaction data, agricultural and commercial banks have resumed buying bonds this week, but the sell-off in the second half of last week has already triggered the withdrawal of trading capital, causing market adjustments to not stop during the first two working days of this week.

According to research data from Minsheng Securities, the Agricultural Commercial Bank reduced its holdings of interest rate bonds by a total of 32.5 billion dollars last Wednesday and Thursday, but net purchases have resumed since last Friday. The main buyers of interest rate bonds on the first two trading days of this week were also agricultural and commercial banks, which mainly sold funds and stock banks. On Monday and Tuesday of this week, the Agricultural Commercial Bank made net purchases of interest rate bonds totaling 151.7 billion yuan, of which the net purchase of interest rate bonds over 10 years was 33.3 billion. The fund sold a net interest rate bond of 62 billion yuan, and the stock bank sold a net interest rate bond of 39.3 billion yuan.

The “Opinions on Promoting Rural Commercial Banks to Adhere to Positioning, Strengthen Governance and Enhance Financial Service Capabilities” issued by the State Administration of Financial Supervision and Administration in January 2019 mentioned that the loan size of agricultural and commercial banks must not be less than 50% of total assets, which subsequently forms an upper limit for self-operated investment businesses.

Jin Yi, head of fixed income at Guohai Securities, pointed out that since 2021, the ratio of total loans to total assets of agricultural and commercial banks has remained around 53%, which can meet regulatory requirements as a whole. If the regulation still maintains the 50% limit, then it will only affect a small number of agricultural and commercial banks that have not met the standards. The scale is small, and the impact on the bond market is manageable. Judging from history, the main swing transactions of rural financial institutions are 10Y treasury bonds, China Development Bank, and 30Y treasury bonds. On the left-hand side of the transaction, it not only has the high layout of the allocation market, but also the low and take-profit operation of the trading market, which acts as a stabilizer in the bond market.

The bond market fluctuated and the intraday amplitude increased

In addition to the factors behind the withdrawal of agricultural and commercial banks, there have also been quite a few other factors that have weakened the bond market unwittingly accumulated recently. According to the Financial Services Association, recently accurate net investment, the DR007 core level has now risen to around 1.7%, indicating that funding may be tightened; another example is the impact of trillion ultra-long-term special treasury bonds on subsequent bond market supply, as well as the January-February export data exceeding expectations and inflation recovery. After the yield fell to a low level, differences in the bond market grew. Bearish factors released bearish sentiment, which had been clearly suppressed in the previous period, compounded by bulls to stop profits, leading to a rise in the 10-year treasury bond yield to around 2.37%.

Judging from the market, the morning sentiment in the bond market has not been repaired. At 13:30 p.m., active 10-year treasury bonds rose 1.5 bps, and 30-year active treasury bonds rose 3.7 bps. The corresponding T main contract and TL main contract fell by about 0.23% and 0.65%, respectively. However, at around 2 p.m., cash notes suddenly turned downward. Treasury bond futures closed in red, and TL's main contract rose 0.34%. However, it is worth noting that the TL contract's end-of-session position dropped sharply, from 55,000 to 53,000.

Source: Wind, compiled by the Financial Association

Traders told the Financial Federation that MLF interest rates were rumored to be lowered on Friday in the afternoon. Currently, the inertia of going long is still there, but they are also worried about the pressure to take profit. It is fluctuating and the market is very easy to be driven by unexpected news.

Pengyang Fund pointed out that short-term bearish factors have not changed the trend of increasing demand from banks, financial management and other institutions for bond allocation this year, especially interest rate bonds. Although the supply of treasury bonds and general local bonds may rise in the future, the supply of special refinancing bonds and government bonds tends to decrease, and the publication of document No. 14 and expanding the geographical scope of chemical bonds is expected to further reduce the supply of high-interest assets such as urban investment in the market. The supply side is still biased against the bond market. Considering that the peak of government bond issuance this year will probably not occur until the second quarter at the earliest, the time for budget funding and expansion of fiscal spending is likely to be postponed even further. Sometime after the second or third quarter, the momentum of domestic demand in the economy is expected to stabilize until then, and downward pressure on prices will also exist in the short term.

If you reach a specific point, you may be able to get a glimpse from a location where transactions are more intense.

Yan Ziqi, head of fixed income at Huaan Securities, believes that the next phase resistance levels of 10Y and 30Y are 2.45% and 2.60%, respectively. After the 30Y interest rate reached 2.60%, insurance institutions sold net on most dates, in stark contrast to the previous one. However, in the 10-year period, agricultural and commercial banks are more obvious. Stock banks and urban commercial banks usually sell net. In the first 25 trading days when the 10Y interest rate reached 2.45%, the bank made a net purchase of 4.4 billion yuan of 10Y treasury bonds and sold 15.6 billion yuan over the next 25 trading days. However, it is worth noting that for configuration plates, the resistance level of pullbacks is higher.