Financial Services Association, Feb. 28 (Reporter Liang Kezhi) Since the beginning of the year, the bond market has continued to strengthen, and the yields of major commodities have repeatedly reached new lows. During the afternoon trading session on the 28th, the yield of active 30-year treasury bonds fell below 2.5%, reaching a low of 2.49%, setting a new low in recent years, and falling below the MLF 2.5% interest rate level.

On the afternoon of the same day, the head of fixed income at a brokerage firm in Shenzhen told the Financial Federation reporter that the market was “crazy” and that he had no idea that the yield would drop so fast.

Some market sources said that the yield on 30-year treasury bonds is lower than the MLF interest rate. This is tantamount to saying that it is lower than the central bank's policy interest rate for one-year loans, which is a huge exaggeration.

According to the data, on February 27, the interest rate for active 10-year treasury bonds was around 2.375%; the interest rate level for active 30-year treasury bonds was around 2.541%.

On February 28, the Tianfeng Securities fixed income team issued an opinion stating that the current policy state may not be enough to reverse the ultra-long-term expectations and asset shortage logic since 2021. There is still a possibility that the interest rate spread for 30Y-10Y treasury bonds of 20 bps will narrow further. If the interest rate spread is estimated at 15-20 BP, the low interest rate corresponding to 30-year treasury bonds may be 2.35-2.45%.

On the same day, the head of a major brokerage research institute in Beijing told the Financial Federation that the current financing market is relatively weak, but the central bank's money supply has always been relatively stable, which has indirectly caused large amounts of capital to be stranded between banks. Due to the scarcity of assets and liquidity, there is currently no sign of a reversal in this wave of bond bullish markets.

Ultra-long bonds are highly sought after

Since the beginning of the year, under the influence of economic fundamentals still weak, market easing expectations are growing repeatedly, capital is stable and balanced overall, and the “equity seesaw” effect is compounded, demand for institutional allocation has been strong, long-term interest rates have broken through the decline, and ultra-long-term debt has gradually become the main type.

The performance of long-term assets, especially ultra-long-term bonds, was stronger. Both yield and term spreads fell to extremely low levels in history, and the overall yield curve flattened.

As of February 23 data, the yield on 10Y and 30Y treasury bonds declined by 16 BP, 26 BP to 2.40% and 2.58%, respectively, from the beginning of the year. The term spreads between the two were reduced by 10 BP to 18 BP, both of which are already at extremely low levels in history.

Recently, Minsheng Securities fixed income Tan Yiming's team issued an opinion that the three main reasons for the current surge in the bond market are the restoration of weak economic fundamentals and the steady progress of “care” on the policy side, with strong unanimous expectations and strong bullish trading sentiment; second, there is an imbalance between supply and demand. Whether it is interest rate bond supply or credit supply, there was a clear lack of balance between institutions; third, although monetary policy considers “anti-aircraft transfer” and peripheral factors, the “protection” of stable liquidity is still the tone and “protection” Under this, the overall funding level is relaxed.

Furthermore, interest rate cuts are still expected in the medium term; after all, real interest rates are currently too high.

The booming market has raised concerns among some institutional personnel. The Beijing brokerage source mentioned above said that under a game of various objective factors such as the economic environment and the immediate needs of institutions, the market is also very helpless. However, in the long run, risks in the bond market will accumulate again. In the case of short-term adjustments, we may only hope for regulatory guidance and intervention.

Long-term matching and revenue rigidity lead to rational procurement by institutions

The boom in the bond market is closely related to the active influx of institutions.

On February 21, the head of the bond trading team at a stock bank told the Financial Federation that the LPR fell beyond expectations in February, benefiting the multi-bond market from the perspective of bank asset price comparison effects, and also beneficial to the multi-bond market from the perspective of expecting continued interest rate cuts. Market sentiment is currently very good, and we are beginning to anticipate the next rate cut.

At the insurance agency, on February 28, Wang Zilu, investment manager of Caixin Life's asset management department, said during an investigation by the agency that the pressure to reinvest increased markedly after the stock coupon assets of CITIC and Real Estate Credit Insurance expired. Combined with the sharp increase in Kaimenhong Life Insurance's premium income, the pressure to allocate was brought about.

In terms of configuration, Wang Zilu believes that life insurance products usually have a long period of time. Traditional life insurance products usually last for 15 years or more, and some whole life insurance products can even be as long as 30 years. This requires the principle of matching the assets and liabilities of life insurance institutions over a long period of time.

Many factors have also led insurers to favor ultra-long-term bonds.

In addition, wealth management products are also shifting their positions to long-term bonds. On February 28, CICC released its latest report, which suggests that the shift in wealth management allocations to medium- to long-term bonds may become a trend. The evidence includes that since the end of 2022, the interest rate on 3-year large deposit certificates has continued to be lower than the yield to maturity of the simulated holding portfolio of same-term credit bonds, and the allocation value of deposit-type assets has declined.

Among alternative assets chosen for financial management, CICC believes that they are mainly credit bonds and interest rate bonds. Recently, the yield to maturity of 3Y AA grade urban investment bonds/short and medium term notes is 2.77%, and the allocation ratio of fixed income wealth management interest rate bonds is only about 3.2%.

It is worth noting that CICC believes that in the context of an “asset shortage,” the performance benchmark for judging wealth management products may decline in the future.