China Economy
We believe this is the best time for the bond market
Despite market hesitancy, we believe now is the best time for the bond market. The 10-year Treasury bond interest rate could fall to around 2.6%.
In our view, monetary easing has just begun and there is still room to break the lower limit to short-term interest rates. As fiscal transition requires policy coordination, the tight credit conditions are unlikely to change any time soon and should continue to dominate the short-term structure. We see allocation pressures at institutions due to asset shortages. The historical interest rate spread between the US and China is within the 70th percentile based on the past 10 years, while the term spread is in the 65th percentile. US short-term interest rates have continued to fall. While the Chinese economy and inflation rates have declined moderately, US interest rate and term spreads still hold compression room.
The market has yet to reach a consensus on the continuation of monetary easing. When monetary policy shifts toward a consensus, it would mean new downside potential in interest rates. When subsequent financial and credit policies are implemented, interest rates could begin to rebound.
Our asset allocation system increased bond interest rates three times in March, May and July 2021. Since an overall cut in the Deposit Reserve Ratio (DRR) in July, interest rates have fallen 25bp and market sentiment has grown apprehensive, due to concerns over fiscal policy and an acceleration in the supply of interest rate bonds. While the market continues to hesitate, we believe this is the best time for the bond market. We expect the 10-year Treasury bond interest rate to fall to about 2.6%.
Risks include: US currency contraction exceeding expectations; China’s economic performance exceeding expectations; and the effects of fiscal policy relaxation exceeding expectations.
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This message is intended only for the individual or entity to which it is addressed. It may contain legally privileged and/or confidential information. TF International Securities Group Limited and its affiliates and subsidiaries (「TF Group」) does not accept liability for the unauthorized use, disclosure, distribution and/or alteration of any information it contains or the consequences thereof. If you are not an intended recipient, please inform TF Group and destroy this message immediately. Thank you.
China Economy
We believe this is the best time for the bond market
Despite market hesitancy, we believe now is the best time for the bond market. The 10-year Treasury bond interest rate could fall to around 2.6%.
In our view, monetary easing has just begun and there is still room to break the lower limit to short-term interest rates. As fiscal transition requires policy coordination, the tight credit conditions are unlikely to change any time soon and should continue to dominate the short-term structure. We see allocation pressures at institutions due to asset shortages. The historical interest rate spread between the US and China is within the 70th percentile based on the past 10 years, while the term spread is in the 65th percentile. US short-term interest rates have continued to fall. While the Chinese economy and inflation rates have declined moderately, US interest rate and term spreads still hold compression room.
The market has yet to reach a consensus on the continuation of monetary easing. When monetary policy shifts toward a consensus, it would mean new downside potential in interest rates. When subsequent financial and credit policies are implemented, interest rates could begin to rebound.
Our asset allocation system increased bond interest rates three times in March, May and July 2021. Since an overall cut in the Deposit Reserve Ratio (DRR) in July, interest rates have fallen 25bp and market sentiment has grown apprehensive, due to concerns over fiscal policy and an acceleration in the supply of interest rate bonds. While the market continues to hesitate, we believe this is the best time for the bond market. We expect the 10-year Treasury bond interest rate to fall to about 2.6%.
Risks include: US currency contraction exceeding expectations; China’s economic performance exceeding expectations; and the effects of fiscal policy relaxation exceeding expectations.
免责声明(DISCLAIMER):
此文件仅发给指定收件人或机构。其内容可能包含某种享有法律特权或者需要保密的信息。对于任何未经本公司授权而对本文件所载内容进行使用、披露、分发、变更之行为及由此产生的后果，天风国际证券集团有限公司及其联属公司和附属公司（「天风集团」）概不承担任何责任。如您并非此文件的指定收件人或机构，请立即通知天风集团，并立即销毁此文件。谢谢合作。
This message is intended only for the individual or entity to which it is addressed. It may contain legally privileged and/or confidential information. TF International Securities Group Limited and its affiliates and subsidiaries (「TF Group」) does not accept liability for the unauthorized use, disclosure, distribution and/or alteration of any information it contains or the consequences thereof. If you are not an intended recipient, please inform TF Group and destroy this message immediately. Thank you.
