On Monday night, the website of the central bank released the press release of the first quarter monetary policy meeting held last Friday. From the regular meeting at the end of the first quarter of this year, we seem to smell some unusual changes in the direction of monetary policy.
First of all, the view on the economy began to become positive. Compared with the wording of the press release of the meeting in the fourth quarter of last year, the view of the meeting in the first quarter on the current economy was changed from "China's economy maintained steady development" to "China's economy showed healthy development", and the view was obviously optimistic. Second, the tone of future monetary policy shows signs of marginal tightening. (1) With regard to the wording of countercyclical adjustment, the importance of countercyclical adjustment has decreased. (2) In the wording of the tone of monetary policy, the intention of marginal tightening is vividly on the paper. (3) In terms of financial reform, further emphasis is placed on two-way opening and service entities.
The regular meeting of monetary policy in the first quarter conveyed the policy intention that the economy tends to be optimistic and the monetary policy tends to be tight. Compared with the previous consensus that monetary policy will continue to be loose, the policy tone has changed obviously, and there are obvious expected differences. Under the guidance of tight monetary policy tone, the possibility of the central bank's RRR cut in the short term has been significantly reduced, and the short-term base money gap will be largely hedged by OMO+MLF(TMLF), and the base money cost will increase significantly. The excessively loose state that the 7-day capital interest rate continues to be lower than the open market interest rate is difficult to reproduce in the short term.
Second, the prospects of credit market: the term spread may go down, but it is not appropriate to significantly extend the term.
Credit bond investment strategy: Due to the shortage of funds and the high opening of the stock market, the trading volume of credit bonds was light on Monday, and the trading volume of bonds of all grades, especially high-grade bonds, declined significantly. In terms of transaction price, industrial bonds performed better than city investment, and the yield of 1 year corporate bonds decreased by about 1bp, while the yields of corporate bonds with other maturities and city investment with various maturities generally increased by 3-6bp. For the later period, we think we need to pay attention to: the term spread or downside, but considering the interest rate risk, it is not appropriate to significantly extend the term.
From the historical data, the term premium of high-rated credit bonds is basically the same as that of interest rate bonds, and the term spread of low-rated credit bonds is higher than that of interest rate bonds as a whole. The longer the term, the bigger the gap, but the trend is still similar. Represented by three-year and five-year maturities, especially since 20 15, the term spread of three-year AAA credit bonds is highly consistent with that of national debt, while the term spread of three-year AAA credit bonds and five-year AAA credit bonds is slightly higher than that of national debt, but the gap is not big, and the overall level and fluctuation range of five-year AAA credit bonds are higher than that of national debt.
First, the term spread of interest rate bonds depends on the monetary policy that determines short-term interest rates and the market expectation that determines long-term interest rates. From a practical point of view, compared with market expectations, short-term interest rates have a stronger impact on term spreads and show a significant negative correlation. In other words, the term spread of interest rate bonds mainly depends on the trend of short-term interest rates. Secondly, the difference in term spreads between credit bonds and interest rate bonds may be related to the difference in liquidity and risk. The shorter the term, the stronger the liquidity and the lower the risk. Therefore, compared with 5-year bonds, the market has a stronger preference for 3-year credit bonds, and the gap between term spreads and interest rate bonds is smaller. Of the two, the risk difference obviously plays a more important role. Finally, from the current point of view, since the beginning of the year, with the gradual improvement of social financing, the continuous introduction of policies such as accelerating the issuance of local government bonds and reducing taxes and fees, and the continuous optimistic signals from Sino-US trade negotiations, PMI, net exports and social financing have all rebounded more than expected in March. Despite the disturbance of the Spring Festival, on the whole, the expectation of economic stabilization is constantly strengthening, the possibility of further relaxation of monetary policy is small, the short-term interest rate is easy to go up and down, and the term spread of credit bonds is more likely to go down. On this basis, the term spreads of low-rated and long-term credit bonds may drop even more. Nevertheless, investors still need to be alert to the interest rate risk caused by the extension of the upward cycle of interest rates.
On Monday morning, last Friday's foreign trade and financial data significantly exceeded expectations, and interest rates continued to rise sharply. Once 10 CDB active bonds rose by 4.5bp compared with last Friday's close. In the afternoon, affected by the ups and downs of the stock market, interest rates fell. Throughout the day, long-term active bonds generally rose by 2-3bp, and some varieties even rose more than 10bp after 3-5 years of non-state opening. Treasury futures opened sharply lower, then the decline slowly narrowed, and it still closed sharply all day. Later, we noticed that:
First, when the central bank is alert to risks, the easing cycle of monetary policy may have ended. On Monday night, the website of the central bank released the press release of the first quarter monetary policy meeting held last Friday. From the regular meeting at the end of the first quarter of this year, we seem to smell some unusual changes in the direction of monetary policy.
First of all, the view on the economy began to become positive. Compared with the wording of the press release of the meeting in the fourth quarter of last year, the view of the meeting in the first quarter on the current economy was changed from "China's economy maintained steady development" to "China's economy showed healthy development", and the view was obviously optimistic. The view of current monetary policy has changed from "stable and neutral monetary policy has achieved good results" to "stable monetary policy reflects the requirements of countercyclical adjustment", which shows that the central bank believes that the current loose monetary policy is the need of countercyclical adjustment, rather than the central bank's intention to release water. The expression of the external environment changed from "the international economic and financial situation is more complicated and facing more severe challenges" to "the international economic and financial situation is complicated and there are still many uncertainties", and the wording was obviously relaxed, reflecting that with the continuous positive progress in Sino-US trade negotiations, external risks have eased.
Second, the tone of future monetary policy shows signs of marginal tightening. Looking forward to the future direction of monetary policy, the wording of the regular meeting in the first quarter has undergone many subtle changes compared with the fourth quarter of last year:
(1) With regard to the wording of countercyclical adjustment, the importance of countercyclical adjustment has decreased. "Intensify countercyclical adjustment to improve the predictability, flexibility and pertinence of monetary policy" is amended as "maintain strategic strength, adhere to countercyclical adjustment, further strengthen coordination between monetary and fiscal policies, timely pre-adjust and fine-tune, and pay attention to preventing risks on the basis of steady growth". The countercyclical adjustment has changed from "increasing" to "persisting", and the expression "improving the predictability, flexibility and pertinence of monetary policy" has been deleted, which indicates that the countercyclical adjustment will be alleviated in the future and the importance of steady growth of monetary policy will be weakened; The new expression of "strengthening the coordination of monetary policy, fiscal policy and other policies" shows that the demand for policy relaxation is weakened, policy coordination is the main tone of future policies, and the possibility of further relaxation of fiscal policy and monetary policy in a short time is weakened; The addition of "maintaining strategic strength" and "paying attention to risk prevention on the basis of steady growth" may mean that the necessity of steady growth is marginally reduced and the importance of maintaining strategic strength to prevent risks is marginally increased.
(2) In the wording of the tone of monetary policy, the intention of marginal tightening is vividly on the paper. From "prudent monetary policy should pay more attention to tightness and moderation, keep liquidity reasonable and sufficient, and keep the scale of money, credit and social financing growing reasonably" to "prudent monetary policy should be tight and moderate, supply money to the main gate well, and do not engage in' flood irrigation', while keeping liquidity reasonable and sufficient, and the growth rate of broad money M2 and social financing scale should match the nominal growth rate of GDP". On the one hand, the importance of monetary policy is declining, which means that the flexibility of monetary policy can be appropriately increased, and the current loose monetary policy has room for moderate tightening; On the other hand, the current monetary policy is loose, and the moderate tightening in the future is also obvious. What is more noteworthy is the statement that "the growth rate of broad money M2 and social financing scale should match the nominal growth rate of GDP". As we all know, the current growth rate of social financing scale has rebounded sharply to 10.7%. If the growth rate of social financing should match the nominal GDP growth rate, it either means that the central bank expects the real GDP growth rate and inflation to rise sharply, or that the central bank believes that the current growth rate of social financing is on the high side and it is necessary to moderately tighten monetary policy in the future. No matter from which point of view, it seems to be unfavorable to the bond market.
(3) In terms of financial reform, further emphasis is placed on two-way opening and service entities. In the first quarter, new words were added, such as "according to the requirements of deepening the structural reform of the financial supply side, focus on adjusting and optimizing the financial system structure", "improving the financial services for small and micro enterprises and agriculture, rural areas and farmers", "further expanding the high-level two-way opening of finance, improving the ability of economic and financial management and risk prevention and control under open conditions, and improving the ability to participate in international financial governance" and "focus on stimulating the vitality of micro-subjects". On the one hand, further strengthen the structural adjustment of the financial system and improve the service for small and micro farmers.
To sum up, the regular monetary policy meeting in the first quarter conveyed the policy intention that the economy tends to be optimistic and the monetary policy tends to be tight. Compared with the previous market consensus that monetary policy will continue to be loose, the policy tone has changed obviously, and there have been obvious expected differences. Under the guidance of tight monetary policy tone, the possibility of the central bank's RRR cut in the short term has been significantly reduced, and the short-term base money gap will be largely hedged by OMO+MLF(TMLF), and the base money cost will increase significantly. The excessively loose state that the 7-day capital interest rate continues to be lower than the open market interest rate is difficult to reproduce in the short term.
Second, the outlook of credit market: the term spread may go down, but it is not appropriate to extend the term significantly.
Affected by the shortage of funds and the high opening of the stock market, the trading volume of credit bonds was light on Monday, and the trading volume of bonds of all grades, especially high-grade bonds, dropped significantly. In terms of transaction price, industrial bonds performed better than city investment, and the yield of 1 year corporate bonds decreased by about 1bp, while the yields of corporate bonds with other maturities and city investment with various maturities generally increased by 3-6bp. In terms of credit spread, the credit spread of industrial bonds decreased1-2bp; Except for a slight decline in the 7-year period, the urban investment spread increased by 1-5BP. For the later period, we think we need to pay attention to: the term spread or downside, but considering the interest rate risk, it is not appropriate to significantly extend the term.
The term premium of high-rated credit bonds is basically the same as that of interest rate bonds, while the term spread of low-rated credit bonds is higher than that of interest rate bonds as a whole. The longer the term, the bigger the gap, but the trend is still similar. Represented by three-year and five-year maturities, especially since 20 15, the term spread of three-year AAA credit bonds is highly consistent with that of national debt, while the term spread of three-year AAA credit bonds and five-year AAA credit bonds is slightly higher than that of national debt, but the gap is not big, and the overall level and fluctuation range of five-year AAA credit bonds are higher than that of national debt.
First of all, how to understand the term spread of interest rate bonds, that is, what is the relationship between short-term risk-free interest rates and long-term risk-free interest rates? Judging from the influencing factors of the two, short-term interest rates are basically determined by monetary policy. A simple example is that the 7-day interbank offered rate (which can be regarded as the money market yield) is highly consistent with the yield of 1 year treasury bonds; Long-term interest rate is based on the existing short-term interest rate and the market's expectation of future short-term interest rate (expectation theory). Therefore, in different stages of the economic and monetary policy cycle, there will be different interest rate curve changes, such as Niu Ping, Niu Steep, and Xiong Steep. For example, in the period when monetary policy remains neutral, if the economy is expected to improve, the long-term interest rate will rise, leading to an increase in term spreads. From a practical point of view, compared with market expectations, short-term interest rates have a stronger impact on term spreads and show a significant negative correlation. In other words, the term spread of interest rate bonds mainly depends on the trend of short-term interest rates.
Secondly, how to understand the difference between the term spreads of credit bonds and interest rate bonds, that is, how to explain the influence of different terms and risks on the term spreads? This may be related to the difference in liquidity and risk (similar to liquidity preference theory). The shorter the term, the stronger the liquidity and the lower the risk. Therefore, compared with 5-year bonds, the market has a stronger preference for 3-year credit bonds, and the gap between term spreads and interest rate bonds is smaller. Of the two, the risk difference obviously plays a more important role. The term spread of 3-year and 5-year AAA credit bonds is significantly higher than that of interest rate bonds, but there is no obvious difference between AAA credit bonds and interest rate bonds.
Finally, what is the future trend of credit bond term spread? The term spread of credit bonds is based on the term spread of interest rate bonds, which in turn depends on the direction of monetary policy. At present, since the beginning of the year, with the gradual improvement of social financing, the continuous introduction of policies such as accelerating the issuance of local government bonds and tax relief, and the continuous release of optimistic signals in Sino-US trade negotiations, PMI, net exports and social financing all rebounded more than expected in March. Despite the disturbance of the Spring Festival, on the whole, the expectation of economic stabilization is constantly strengthening, the possibility of further relaxation of monetary policy is small, and short-term interest rates are prone to fluctuation, that is, the term spread of credit bonds may decline. On this basis, the term spreads of low-rated and long-term credit bonds may drop even more. Nevertheless, investors still need to be alert to the interest rate risk caused by the extension of the upward cycle of interest rates.
(Article source: Quqing Bond Forum)