Chailian News, July 16th - Since the second quarter, the central bank has repeatedly warned of the risks of long-term bonds and the policy of guiding the upward trend of long-term bond yields has become stronger. Recently, the bond market has experienced volatility, first falling and then rising, and the long-term interest rate has shown a "step-like" downward trend. The weighted average duration of net purchases of various institutions has increased, and the duration of fund purchases has increased from 11.7 years to 20.5 years, the highest among institutions.

According to the latest institutional behavior, from July 8th to 12th, the weighted average duration of net purchases of funds, rural commercial banks, insurance and wealth management products has increased. Data from Zhongtai Securities' fixed-income chief Xiao Yu shows that the duration of fund purchases has increased from 11.7 years to 20.5 years, the duration of rural commercial banks has increased from 5.5 years to 6.0 years, the duration of insurance has increased from 13.0 years to 15.0 years, and the duration of wealth management has increased from 2.3 years to 3.9 years.

Compared with the duration that consistently increased, the degree of leverage of each institution has differentiated. Overall, the overall leverage ratio of the interbank market remained at 107.9% last week. Among different institutions, Zhongtai Securities' data shows that the bank leverage ratio has increased from 103.7% to 103.9%, while the leverage ratios of brokerage, insurance, and general fund have declined. The brokerage leverage ratio has decreased from 192.4% to 192.2%, the insurance leverage ratio has decreased from 118.0% to 117.7%, and the general fund leverage ratio has decreased from 114.9% to 114.6%, all lower than the average since 2021.

Li Yisong, the chief of fixed income at Xinda Securities, said that the bond market fell first last week and then rose, with short-term interest rates rising slightly and long-term interest rates falling slightly. The selling sentiment of trading institutions has eased overall, but the willingness of fund companies to reduce their holdings of bonds has increased, and other products' willingness to increase their holdings of bonds has decreased, mainly tending to reduce their holdings of time deposits, while the willingness of brokerages to reduce their holdings of bonds has decreased significantly. The willingness of asset allocation institutions to increase their holdings of bonds have slightly cooled down, of which the willingness of rural commercial banks to increase their holdings of bonds has decreased significantly, while the willingness of insurance companies and wealth management products to increase their holdings of bonds has slightly increased, with insurance companies mainly increasing their holdings of ultra-long-end national bonds and medium-and-short-end policy financial bonds and wealth management products mainly increasing their holdings of time deposits.

Previously, Chailian News reported that in April, the amount of bond custodianship reached a new high, but the growth rate continued to slow; in May, the amount of bond custodianship continued to reach a new high, and the growth rate increased; the degree of undermatching of institutional bonds in June weakened. Since the second quarter, due to the repeated warnings of long-term bond risks by the central bank, the downward trend of 3-5 year interest rate bonds in the second quarter has been significantly greater than that of short-term and long-term bonds.

According to the statistics of Wanjie Securities, in the second quarter of this year, the one-year interest rate bonds were mainly increased by rural commercial banks, large banks, monetary funds, and wealth management products, while the 1-3 year interest rate bonds were mainly increased by large banks, funds, foreign banks, and insurance companies.

Funds still steadily maintain net purchases of 3-5 year interest rate bonds. Rural commercial banks net purchased in April and net sold in June, consistent with the same period last year; the 5-10 year interest rate bonds were mainly net purchased by funds. The situation of net purchase in April and net sale in June of rural commercial banks is more obvious than that of 3-5 year interest rate bonds; the 10-year and longer interest rate bonds were mainly increased by insurance.

Figure 1: Net purchase data by institution (5-10 year interest rate bonds)

Source: Wanjie Securities, compiled by Chailian News

Figure 2: Net purchase data by institution (10 year and longer interest rate bonds)

Source: Wanjie Securities, compiled by Chailian News