Financial Services Association, May 15 (Editor: Li Xiang) At a time when market expectations of interest rate cuts and cuts are getting stronger, today, the central bank renewed the MLF equivalent of 125 billion yuan, and interest rates remained flat at 2.5%. At the same time, the OMO market carried out a 7-day reverse repurchase operation equal to 2 billion yuan. The winning bid interest rate was 1.80%, which is the same as before.

Due to the central bank's equal parity renewal of MLF and reverse repurchase operations, the open market achieved zero investment and zero return today.

Judging from the early trading market trend, 10-year treasury bonds started slightly lower. After MLF data was released, they quickly rose to 2.295%, then fell rapidly, and the overall amplitude was less than 1 bp. The overall performance of the bond market was strong. As of 11:00 a.m. press release, only short-term yields had risen.

Data source: DM, compiled by the Financial Federation

Liu Yu, chief economist of Huaxi Fixed Income, believes that although the “slimming down” of social finance in April indicates poor short-term demand, judging from the long-term interest rate pricing results in the past two days, there are two reasons behind this. One is that the current long-term interest rate pricing already contains expectations of 10-20 bp of interest rate cuts; second, the current exchange rate pressure still exists. The market's expectations for interest rate cuts are not too strong, and the focus is mostly on changes in the scale of MLF's continuation.

According to information, in the past, many market players had a liberal attitude about the scale of MLF's sequels. Market participants generally believe that in the current situation where “banks lack money, non-banks have money,” the accelerated issuance of government bonds will disrupt the market. In particular, ultra-long-term special treasury bonds will be issued ahead of schedule. The central bank may cooperate by downgrading and MLF volume to guide the market back to stability.

However, the central bank has spoken out many times to anticipate and manage the issuance of ultra-long special treasury bonds in the market. Coupled with the slow pace of issuing ultra-long special treasury bonds, there is no significant monthly supply peak. The short-term impact on liquidity will be much lower than expected, and market institutions' expectations for the central bank's supporting monetary policy have also been lowered.

According to Liu Yu, the possibility of MLF renewal in the current amount is high, mainly considering that the current 1-year deposit issuance price is still lower than the MLF interest rate of 30-40 bps, and non-bank funds are relatively sufficient. Even if banks may face short-term problems of lack of debt, they still have other lower-cost financing methods, and the probability that banks will declare MLF amounts in large amounts is probably small.

Judging from the recent performance of interbank deposits, major banks have increased the issuance of interbank deposits and reduced the scale of capital financing since mid-late April. Interest rates on interbank deposits remained relatively low during the year, while financial management institutions have increased the allocation of interbank deposits, and the position structure is gradually skewed towards short- and medium-end types.

Wei Lulu, a fixed income analyst at CICC, said that at present, it is still difficult for the capital interest rate center to rise sharply, and there is resistance to the overall upward trend in bond market earnings. After deposits are converted to financial management, although financing from major banks declined, financing from non-bank institutions is also expected to increase after the scale of non-banks grows.

Furthermore, some market participants believe that this MLF sequel is the first time since March that the downsizing has ended, and that the same volume renewal is also a relative amount to a certain extent, reflecting the central bank's care for the market's financial aspects.

The CITIC Fixed Income Team believes that MLF may be waiting for a better time to cut interest rates on deposits or is more feasible. As far as the bond market is concerned, in an environment where the special treasury bond supply plan is implemented and the bond market is exhausted in stages, it is expected that short-term interest rates will maintain a volatile trend.

Judging from today's intraday performance, the bond market continued yesterday's weak and volatile trend, and trading activity also declined somewhat. As of 11:00, 10-year treasury bonds were 2.2875%, down 0.1 bps, with a total of 1008 transactions.