The Zhitong Finance App learned that the China Foreign Exchange Trading Center released the “Report on the Operation of the Interbank Local Currency Market for the First Half of 2024". In the first half of 2024, the volume and balance of transactions in the money market decreased, and the phenomenon of capital stratification subsided; treasury bond issuance and trading were active, and the overall yield in the bond market fluctuated downward, and the curve became steeper; the overall interest rate swap curve flattened downward, and RMB derivatives transactions declined sequentially. In the first half of the year, all trading instruments traded a total of 1078.4 trillion yuan, an increase of 3.6% year-on-year and a decrease of 5.6% month-on-month.

1. The volume and balance of transactions in the money market have decreased, the phenomenon of capital stratification has subsided, the average daily net financing balance of large commercial banks has decreased, and monetary fund financing has made up

(1) Money market trading volume decreased month-on-month in the first half of the year

The total volume of money market transactions in the first half of the year was 846.6 trillion yuan (down 11% from the previous month), and the average daily turnover was 6.9 trillion yuan (down 8% from the previous month). Among them, credit lending transactions were 51.3 trillion yuan, with an average daily turnover of 416.8 billion yuan (a decrease of 23% month-on-month); pledged repurchase transactions were 791.6 trillion yuan, an average daily transaction of 6.4 trillion yuan (a decrease of 7% month-on-month); and buyout transactions were 3.8 trillion yuan, with an average daily turnover of 30.8 billion yuan (up 45% month-on-month).

(2) The downgrade in the first half of the year was compounded by structural interest rate cuts, and the stratification of funds was not obvious

In the first half of the year, the central bank downgraded and combined structural interest rate cuts. Specifically, on January 24, the central bank announced a 25 BP reduction in the next day's rediscount interest rate, agricultural support and small reloan interest rate, and 50 BP on February 5. In the first half of the year, the central bank invested 2,289 billion yuan MLF, matured 2,291 billion yuan MLF, and reverse repurchases made a net return of 2,089 billion yuan. The amount of reverse repurchase sales due in the first quarter was large. At the end of the second quarter, the central bank stepped up reverse repurchase efforts to protect cross-month liquidity.

Overnight repurchase interest rates have risen, 7-day repurchase interest rates have declined, and the phenomenon of stratification of liquidity has weakened. In the first half of the year, the weighted mean values of DR001 and r001 were up 11bp, up 8bp to 1.74%, and 1.84%, respectively; the weighted mean values of DR007 and R007 were down 4bp and 22bp to 1.89% and 2.06%, respectively. In the first half of the year, the lowest value of DR007 was 1.7640%, the highest value was 2.1664%, and the median was 1.8505%; the fluctuation was 40 basis points, a decrease of 41 basis points over the previous month. The trend of capital interest rates in the money market is stable, and liquidity is reasonable and abundant. The effect of the Spring Festival was obvious in January. Interest rates for various periods were relatively high, and interest rates rose during the period of March and the half-year period in June. Since the second quarter, the market capital stratification situation has converged. Non-bank funds are abundant and financing is smooth. The average interest spreads for R001-DR001 and R007-DR001 in the first half of the year were 10BP and 16BP respectively, decreasing by 5 BP and 14 BP, respectively.

(3) The leverage ratio is low, the average daily balance of the money market has decreased slightly, the average daily net loan balance of large commercial banks has decreased, and the monetary fund has made up for financing

The average daily balance in the money market declined slightly in the first half of the year. Due to the compression of leverage arbitrage space, the average daily leverage ratio of the interbank market in June fell 1.54 percentage points to 107.47% compared to December last year. The average daily balance of the money market in the first half of the year was 11.6 trillion yuan, down 4% from the previous month. Among them, the impact of major bank financing declined markedly. In the first half of the year, the average daily net financing balance of large commercial banks decreased 11% month-on-month, and monetary fund lending made up some allowance, and the average daily net financing balance increased 5% month-on-month.

2. Global monetary policies are fragmented, domestic economic data is still bottoming out, treasury bond issuance and trading are active, bond market yields fluctuate and decline as a whole, and the curve is steeper

(1) Global monetary policies are fragmented, expectations of the Federal Reserve's interest rate cut are delayed, the domestic economy continues to recover in a positive trend, exports are strong, and domestic demand is bottoming out

On the international side, global monetary policies are divided. The ECB began cutting interest rates in June, and the Bank of Japan raised interest rates for the first time in March and ended the yield curve control policy. Inflation remains sticky in major economies. The market expects the Federal Reserve to cut interest rates for the first time to be delayed until September, and the number of interest rate cuts during the year will also be lowered to 1 time. On the domestic side, external demand supported the economy in the first half of the year. The export growth rate was better than expected, but domestic demand was weak, investment and consumption growth rates were slowing down, the manufacturing industry maintained resilience, infrastructure growth declined, and the effects of real estate policies being implemented one after another remain to be seen. The manufacturing PMI for June was 49.5%, and it was below the boom and bust line for the second month in a row.

(2) The issuance of treasury bonds, credit bonds, and financial bonds increased year-on-year and reached a new high during the same period, while issuance of other bonds declined markedly year-on-year

Bonds of 0.0115 million and 21.9 trillion yuan were issued in the first half of the year. Issuance volume increased 1.2% year on year and decreased by 6.2% month on month; net financing was 5.3 trillion yuan, down 0.7 trillion yuan (-11.6%) year on year, and 1.9 trillion yuan (-26.5%) month on month. See Table 1 for details.

Table 1 Tier 1 Issuance and Financing Status

(3) Active government bond trading, with the biggest year-on-year and month-on-month increase

Cash transactions in the first half of the year were 4.31 million yuan and 193.6 trillion yuan, with an average daily turnover of 1573.9 billion yuan, an increase of 35% year-on-year and 23% month-on-month. Among them, treasury bonds traded 70.8 trillion yuan, up 183% year on year, up 61% month on month; policy financial bond transactions were 49.5 trillion yuan, down 11% year on year, down 6% month on month; local government bond transactions were 8.95 trillion yuan, up 63% year on month, up 23% month on month; major types of credit bonds were 14.3 trillion yuan, down 8% year on year and 3% month on month; financial bonds traded 10.6 trillion yuan, up 16.5% year on month; month on month; Interbank deposit transactions amounted to 38.8 trillion yuan, up 22% year on year and 20% month on month.

In the first half of the year, 0.135 million bond loans were traded, and the total face value of the underlying securities was 17.8 trillion yuan, with an average daily turnover of 144.8 billion yuan, an increase of 49% over the previous year, and an increase of 17% over the previous year. There were 4 central loan transactions, and the total face value of the underlying securities was 0.04 billion yuan.

(4) The overall yield in the bond market fluctuated downward. The 10-year and 30-year treasury bonds were operating in the 2.21% to 2.56% and 2.42% to 2.84% ranges respectively. The curve was steeper and the credit spread narrowed

In the first half of the year, overall bond market yields fluctuated downward. From the beginning of the year to the beginning of March, interest rate cuts and institutional arrears supported the strengthening of the bond market, with 10- and 30-year treasury bond yields falling below 2.3% and 2.5%; from early March to late April, although real estate policy expectations and ultra-long bond supply expectations were disrupted, the pace of local bond issuance was slow and declined again after the yield fluctuated; since late April, the central bank repeatedly prompted the risk of long-term debt combined with the implementation of a new real estate policy.

At the end of the half year, the yields of treasury bonds to maturity of 1, 3, 5, 7, 10, and 30-year terms were 1.54%, 1.8%, 1.98%, 2.1%, 2.21%, and 2.43%, respectively, down 54, 49, 42, 43, 35, and 40 basis points from the end of the previous year. In the first half of the year, the 10-year treasury bond curve had a low value of 2.2058% and a maximum value of 2.5601%. The fluctuation range was about 35 basis points, 18 basis points wider than the previous month, and 4 basis points wider than the previous year. Credit bond yields have declined sharply across the board, and credit spreads and grade spreads have narrowed.

3. The overall interest rate swap curve flattened downward, and RMB derivatives transactions declined month-on-month

In the first half of the year, due to the decline in capital interest rates and the decline in cash interest rates, the overall interest rate swap curve flattened downward. The 6-month, 1-year, and 5-year SHIBOR 3M swap prices were 1.9078%, 1.9277%, and 2.0654%, respectively, down 49, 36, and 50 basis points from the end of the previous year, respectively. The 1-year, 5-year, and 10-year FR007 swap prices were 1.8363%, 1.9638%, and 2.1588%, respectively, down 16, 35 and 35 basis points from the end of the previous year, respectively

The average daily turnover of interest rate swaps decreased. In the first half of the year, RMB interest rate swaps totaled 0.155 million transactions, an average daily decrease of 14.1%; the total nominal principal amount was 15.4 trillion yuan, with an average daily turnover of 124.888 billion yuan, a decrease of 4.5% over the previous month.

Average daily transactions of tendered bond forwards and interest rate options declined month-on-month. In the first half of the year, there were 2,404 forward transactions for standard bonds, with a nominal principal of 187.81 billion yuan, a daily average decrease of 14.1%. RMB interest rate options traded 216, with a nominal principal amount of 42.78 billion yuan, an average daily decrease of 8.9%. Among them, there were 4 interest rate swap options transactions and a nominal principal amount of 1.8 billion yuan; 212 upper/lower interest rate option transactions and a nominal principal amount of 40.98 billion yuan.