① The Ministry of Finance's issuance plan is “at an unhurried pace”, taking full account of the market's monthly carrying capacity. ② Judging from the issuance plans currently known, it is a good thing to ease supply in the bond market. The market's focus will now shift to capital aspects and trading opportunities. ③ Without excessively raising the cost of fiscal issuance, it is possible that the policies of downgrading and interest rate cuts will be implemented in May and June.
Financial Services Association, May 13 (Reporter Liang Kezhi) According to a notice from the Ministry of Finance, an ultra-long-term treasury bond mobilization meeting will be held at 9 a.m. this morning. Beginning at 10 a.m., influenced by market news, 10-year and 30-year treasury bond futures were trending up, rising 0.18% and 0.81% respectively, with highs of 104.48 yuan and 106.57 yuan respectively.
A number of institutional sources told the Financial Federation that, according to today's market news, ultra-long treasury bonds are divided into 20-, 30-, and 50-year terms. From their initial issuance on May 17 to the end of November, they were issued 22 times.
At noon, the Ministry of Finance officially announced the “2024 General Treasury Bonds and Ultra Long-term Special Treasury Bonds Issuance Arrangements”, decided to issue 30-year ultra-long-term special treasury bonds on May 17, decided to issue 20-year ultra-long-term special treasury bonds on May 24, and decided to issue 50-year ultra-long-term special treasury bonds on June 14. The content of the distribution plan is basically in line with market rumors.
On May 13, the fixed income chief of a major brokerage firm in Shanghai told the Financial Federation that the market was boosted by news of the conference in the morning, and 10-year and 30-year treasury bond futures rose markedly.
The source believes that the multi-frequency and small-amount plan currently being adopted shows that the Ministry of Finance issues “at an unhurried pace” and fully takes into account the market's ability to withstand each month; secondly, it also confirms the previous statement that after issuing 1 trillion yuan of special treasury bonds at the beginning of the year, the urgency of issuing ultra-long treasury bonds has declined.
On April 17, relevant officials of the National Development and Reform Commission confirmed that in February of this year, the Development and Reform Commission completed issuing a list of all three batches of additional treasury bonds totaling 1 trillion yuan, and implemented the additional treasury bond funds to about 15,000 specific projects. Since March, the Development and Reform Commission has established an online scheduling mechanism to urge projects to speed up construction.
Wang Jianfan, director of the Budget Department of the Ministry of Finance, explained at a press conference held by the State Information Office on April 22 that the first quarter was smaller than in previous years. On the one hand, the scale of issuance was increased at the beginning of the year in response to special factors such as the impact of the epidemic. On the other hand, it was also related to factors such as local project construction capital requirements, winter and spring construction conditions, and bond market interest rates. At the same time, a great deal of work was done to improve the quality of special debt projects and strengthen pre-project preparations.
On May 13, a private bond trader in Hangzhou told the Financial Federation that the ultra-long treasury bond issuance plan has finally been implemented, which is generally good for policy; judging from what we know about the issuance plan, it is a good thing to ease supply in the bond market, and the market's focus now will shift to capital aspects and trading opportunities.
The pace of distribution lengthens beyond market expectations
People from various institutions told the Financial Federation in early trading that according to today's market news, ultra-long treasury bonds are divided into 20-, 30-, and 50-year terms. From the first issue on May 17 to the end of November, they were issued a total of 22 times. Near noon, the relevant arrangements officially disclosed by the Ministry of Finance were basically in line with market expectations.
Earlier, according to Guohai Securities's latest report, the issuance window for special/additional treasury bonds generally does not exceed 2 months.
By the end of April 2024, according to Guohai Securities statistics, the issuance progress of new special bonds during the year was just over half of the issuance plan disclosed by local finance in the first and second quarters, and the issuance progress was clearly lagging behind. Recently, the pace of issuing local special bonds may have increased.
Considering that June and July are the peak periods for local special bond issuance, they may overlap with the issuance period of ultra-long-term special treasury bonds, and the impact on the bond market is worth paying attention to.
One of the brokerage analysts mentioned above believes that if the issuance cycle of ultra-long treasury bonds is lengthened, factors such as conflicts with local bond issuance and market capital shocks may be mainly taken into account.
A Finance Association reporter noticed that the 2023 trillion trillion special treasury bond was issued within the fourth quarter of last year, and the usage cycle spanned to February of this year.
On April 17, relevant officials of the National Development and Reform Commission confirmed that in February of this year, the Development and Reform Commission completed issuing a list of all three batches of additional treasury bonds totaling 1 trillion yuan, and implemented the additional treasury bond funds to about 15,000 specific projects. Since March, the Development and Reform Commission has established an online scheduling mechanism to urge projects to speed up construction.
At the same time, the source also said that government investment, such as local government special bonds and the issuance of additional treasury bonds in 2023, will play an important role in driving and amplifying effective investment.
Data show that in the first quarter, the country's fixed asset investment increased 4.5% year on year, 0.3 percentage points faster than January-February, and 1.5 percentage points faster than the whole of last year, showing a steady upward trend. Among them, investment in manufacturing and infrastructure increased by 9.9% and 6.5% respectively, maintaining a relatively rapid growth rate; private investment grew by 0.5%, and the growth rate rebounded further, accounting for 51.6% of total investment.
Downgrade interest rates or escort the issuance of treasury bonds
On May 10, the central bank released the monetary policy implementation report for the first quarter, showing an increase in the issuance of various types of bonds. 5.4% However, the volume of cash transactions continued to grow at a relatively rapid pace. Total cash transactions in the bond market in the first quarter were 106.9 trillion yuan, a sharp increase of 42.9% over the previous year.
Under the influence of active trading, long-term treasury bond yields declined in the first quarter of 2024. The yield on 10-year treasury bonds fell to 2.29% from 2.56% at the beginning of the year, and the yield on 30-year treasury bonds fell to 2.46% from 2.84% at the beginning of the year, falling 27 and 38 basis points, respectively.
The central bank believes that long-term treasury bond yields mainly reflect expectations for long-term economic growth and inflation, and are also disturbed by factors such as lack of safe assets.
However, the decline in the market yield game has also reduced the opportunity cost of issuing various types of bonds.
On May 13, Sun Binbin of Tianfeng's fixed income team believed that under the pressure of an “asset shortage,” banks were unable to find suitable assets. The impact on debt allocation by major banks during the “asset shortage” was limited. Urban and agricultural commercial banks bought credit bonds at high prices, showing a situation of “big banks lending and small banks buying debt” to a certain extent.
On May 13, a trader from a commercial bank's proprietary team told the Financial Association that currently the impact on liquidity is limited, but it is uncertain whether major banks and insurance can withstand such a large supply of long-term bonds.
According to Guohai Securities's latest report, in order to hedge against disturbances in the bond market caused by the issuance of local bonds and ultra-long-term special treasury bonds, and without excessively increasing the cost of financial issuance, policies to downgrade and interest rate cut may be implemented in May and June.
The brokerage analyst mentioned above believes that although centralized debt issuance may reduce the pressure on market capital, policy tools to lower interest rates should still be used, because it is also necessary to consider the effect of monetary policy tools on boosting demand on prices, not only as a hedge against market liquidity.
Furthermore, the trader mentioned above believes that the current 1 trillion ultra-long treasury bonds may be “insufficient”. According to the central government's plan to issue ultra-long-term special treasury bonds for several consecutive years starting this year, it is expected that they will be issued on a rolling basis next year.