Abundant capital is expected to enhance the “debt cow” strong continuation

2022-05-08 0 By

Industry insiders believe that the expectation of reasonable and abundant liquidity is the core logic of the continuation of the “debt cow” situation — the interest rates of major monetary instruments have been lowered, indicating that the dual functions of the aggregate and structure of monetary policy tools continue to play a role.”The People’s Bank of China has made it clear that the prudent monetary policy will be flexible and appropriate, and the initiative to maintain reasonably abundant liquidity will remain unchanged.””Said Lou Feipeng, a researcher at the Postal Savings Bank of China.Treasury futures surged again yesterday after the central bank stepped up reverse repurchase operations to signal ample liquidity, with the 10-year main contract up 0.16 per cent, the five-year main contract up 0.15 per cent and the two-year main contract up 0.05 per cent.At the same time, the 10-year Treasury yield fell below the important mark, yesterday at 15:55, the 10-year Treasury yield fell 2.5 basis points to 2.6788%, below 2.7%.In order to maintain stable liquidity before the Spring Festival, the People’s Bank of China (PBOC) announced on Jan 24 that it launched a 14-day reverse repurchase (REPO) operation of 150 billion yuan on Jan 24, 2022 through an interest rate tender. The bid rate was 2.25%.Given that 100 billion yuan of reverse repos were due that day, a net 50 billion yuan was put on the market in a single day.The last 14-day reverse repurchase operation was carried out one month ago: In order to maintain stable liquidity at the end of the year, the People’s Bank of China conducted a 14-day reverse repurchase operation of 10 billion yuan in the form of interest rate bidding on December 24, 2021, with the winning interest rate of 2.35%.The size of the 10 BP “rate cuts” was in line with the rate cuts made last week by monetary policy tools such as the medium-term Lending Facility (MLF) and the seven-day reverse repurchase rate.It is customary for the central bank to protect liquidity before the Spring Festival.Industry insiders said that from previous experience, the market liquidity demand usually rises before the Spring Festival. In order to meet the market liquidity demand, the central bank will often adopt different maturity combination tools to provide liquidity.’Liquidity was still under some pressure in January,’ Mr. Lou said, driven by increased demand for cash withdrawals near the Lunar New Year holiday and a significant increase in government bond issuance ahead of fiscal policy.”The People’s Bank of China’s 14-day reverse repurchase (REPO) operation can not only coordinate with fiscal policies to stabilize the macro economy, but also improve the satisfaction of residents’ demand for cash withdrawal.At the same time, the maturity across the Spring Festival can also reduce liquidity siltation after the Spring Festival.”Mr. Lou said.A senior insurance investment officer said the drop in the 14-day reverse repurchase rate was in step with previous rate cuts by other policy tools of the central bank.”Basically in line with market expectations, the small amount of net supply shows the central bank’s attitude of lowering the price of funds, which helps guide the market interest rate center to move down moderately.”He said.Treasury bond futures, cash both strong yesterday, Treasury bond futures all main contracts closed up.The main contract for 10-year Treasury futures closed up 0.16 per cent yesterday, data showed.As of yesterday’s close, the 10-year Treasury bond futures (T2203) closed at 101.500 yuan, up 0.165 yuan, or 0.16%;Five-year Treasury bond futures (TF2203) closed at 102.620 yuan, up 0.155 yuan, or 0.15%;Two-year Treasury futures (TS2203) closed at 101.465 yuan, up 0.050 yuan, or 0.05 percent.The 10-year yield was down 2.5 basis points at 2.6788 per cent at 15:55 yesterday.The 10-year yield was down 3.5 basis points at 2.9175 percent.Industry insiders generally believe that Treasury bonds and futures both strong, reflecting the market’s reasonable face of abundant expectations, optimism.The above insurance senior investment officer said that the current 10-year Treasury bond interest rate followed the policy rate downward trend obviously, breaking the integral point of 2.7%, the signal is more significant.Qu Qing, chief economist at Jianghai Securities, said the 10-year Treasury bond rate fell below 2.7 per cent, indicating that the current market sentiment is relatively optimistic and the whole market is riding the trend.”Generally speaking, the interest rate is too low, and there are still risks in the bond market after the ‘easy credit’ initiative.”He said.Citic securities fixed income team said that for the bond market, “wide money” and “wide credit” is still wrestling.The certainty of “broad currency” is stronger, and the expectation of “broad credit” awaits the landing and verification of the economic and financial data in the first quarter.Considering the possibility of further abundant liquidity in the market, the downward trend of the market interest rate may not end. It is expected that the bottom of the Treasury bond yield is around 2.6%, and the adjustment risk may appear in the second quarter.