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.
免責聲明(DISCLAIMER):
此文件僅發給指定收件人或機構。其內容可能包含某種享有法律特權或者需要保密的信息。對於任何未經本公司授權而對本文件所載內容進行使用、披露、分發、變更之行爲及由此產生的後果，天風國際證券集團有限公司及其聯屬公司和附屬公司（「天風集團」）概不承擔任何責任。如您並非此文件的指定收件人或機構，請立即通知天風集團，並立即銷燬此文件。謝謝合作。
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.
