Recently, US bond yields began to rise again, while A shares, Hong Kong stocks and US stocks fell across the board. What on earth is US debt? Why does the bond market affect the stock market?

This article will explain the relationship between bond interest rates and stocks in an easy-to-understand way, and then focus on why Chinese equity assets are more vulnerable to US debt interest rates.

There is an inverse relationship between bond interest rate and asset price.

According to the bond formula, M is the face value of the bond, r is the bond interest rate, C is the coupon interest, and P is the bond price. We simply understand that M and C are fixed, and the changes are r and P.The bond interest rate r is inversely proportional to the bond price P.Usually, the larger the r, the lower the P, and the smaller the r, the higher the P.

Generally speaking, treasury bonds are a kind of bonds, and the bonds endorsed by the national government have a low probability of default and are usually understood as risk-free assets. At present, it is recognized by the world that US bonds are global risk-free assets, so US debt interest rates are the anchor of global asset pricing.

The bond is the bond market and the stock is the stock market. Why does the yield of the bond affect the stock?The following is the stock DCF pricing model:

In the stock DCF model, r = treasury bond interest rate (commonly known as "risk-free interest rate") + risk preference interest rate. As a result, we can get that the higher the interest rate of treasury bonds (risk-free interest rate), the higher the r in DCF, the lower the stock price P.

The above formula briefly explains the relationship between interest rates and stocks in the near future. In fact, the capital market is extremely complex, disturbed by many factors, the interest rate of treasury bonds is one of the influencing factors. Recently, people will also be particularly curious about why China's core assets are more affected by the interest rate on 10-year US Treasuries than by the interest rate on Chinese 10-year bonds.

The next content mainly answers the following questions: 1) Why are China's core assets subject to higher interest rates on US bonds than on Chinese government bonds? 2) Why did core asset valuations deviate from US debt interest rates at the end of 2020 and early 2021? 3) long-term logic, which track's core assets are more worthy of layout?

Why are China's core assets more affected by US bond interest rates?

First of all, logically, since 2017, foreign capital has flowed into the A-share market and become the marginal pricing capital of core assets. At the same time, the entry of foreign capital has gradually changed the pricing logic of these companies. At present, northward capital accounts for an average of 15% of the free-floating market capitalization of the 50 stocks in the top 50 indices.

Secondly, from the results of the empirical test, after the substantial inflow of foreign capital began in 2017, it is indeedThe reverse correlation between US debt interest rates and the valuation of China's core assets is more obvious.According to the comparison of the two charts below, US bond interest rates are more clearly in line with the trend of China's core assets.

Why did core asset valuations deviate from US bond interest rates at the end of 2020 and early 2021?

It is mainly driven by the large-scale issuance of domestic funds in early 2021, and the weekly issuance size of more than 70 billion has led to a sharp rise in the valuation of core assets, which deviates from the interest rate of US debt.

Recently, after the issuance of public funds has returned to a stable state, US bond interest rates may still act as an anchor for the valuation of China's core assets.

Long-term logic, which track's core assets are more worthy of layout?

With regard to the price increase power of different consumer goods, we can first look at a set of data:

From the long-term growth rates of CPI and CPI segments of various countries, not all consumer industries CPI can outperform the overall CPI.Generally speaking, the long-term growth rate of essential consumer goods is higher than that of overall CPI, while the long-term growth rate of optional consumer goods is lower than that of overall CPI.

As a matter of fact, the best price performance is in the service industry, especially education and health care. The characteristics of these two types of consumer goods have to be done manually. Therefore, when it comes to labor costs, they all have to raise wages, and at the same time, they are basically necessities, and the corresponding products have a stronger ability to increase prices.

And durable consumer goods, mostly manufacturing, will continue to occur technological progress, cost reduction, machine replacement, and so on, so product prices do not rise but fall.

According to the final conclusion of Tianfeng Securities: from the point of view of price increase ability, the order probability of sustainable growth rate isEducation, Medical treatment > Alcohol, Food > Furniture, Home Appliances, Automobile, clothing, Electronic products.