- In June, the net purchase of government bonds by China's central bank fell to 10 billion yuan, marking the lowest monthly record since the operation was resumed last October. The market has largely absorbed the potential impact of this marginal policy change.
- The yield on the 30-year ultra-long-term special government bonds reissued by the Chinese Ministry of Finance today was 2.2723%, slightly higher than the latest transaction level in the secondary market, causing upward pressure on long-term government bond yields amid a generally warming trend in the early trading of cash bonds.
- Entering July, China's bond market will face the maturity of two reverse repurchase agreements totaling 1.7 trillion yuan, with 800 billion yuan maturing on July 5. The scale and method of operations in the open market next week will become the core variables for the market's assessment of long-term capital expectations.
Easing of Funds and Divergence in Cash Bonds
The weighted overnight repo rate for deposit institutions in China's interbank market has gradually fallen back to normal levels, further alleviating liquidity tensions. Driven by ample funds, most varieties in the government bond cash market showed a warming trend in early trading. However, influenced by the primary market bidding results, there was a noticeable divergence in the trends of different maturities. The yield on the active 10-year government bond slightly rose to 1.7365%, while the long and ultra-long-term varieties experienced more pronounced selling pressure, steepening the yield curve.
Primary Market Bidding Pressures Long End
The reissuance of the 30-year ultra-long-term special government bonds by the Ministry of Finance in the morning became the core factor suppressing long-end performance. According to Citic and related industry insiders, the yield on the 30-year government bond was set at 2.2723%, about 0.6 basis points higher than the latest transaction level in the secondary market. After the bidding results were announced, the latest transaction price of the 30-year special government bond weakened, with the yield rising to 2.2685%. In the government bond futures market, the main contract for the 30-year bond saw its decline expand, closing down more than 0.1% for the day.
Central Bank's Reduced Operations and Policy Continuation Window
Data from the open market shows that in June, China's central bank only net purchased 10 billion yuan in government bonds, a significant reduction of 40 billion yuan compared to May. This indicates that the monetary authorities are exercising restraint in adjusting liquidity through the buying and selling of government bonds, avoiding the premature release of excessive credit easing signals. Traders are now focusing on the 1.7 trillion yuan of reverse repurchase agreements maturing in July. If the central bank fails to achieve equivalent hedging in next week's continuation, it may have a negative marginal impact on the market's long-term liquidity expectations.
Bond Market's Bull-Bear Struggle and Future Outlook
From an institutional perspective, the current core characteristic of China's bond market is the coexistence of bullish logic continuation and bearish disturbances. The weak recovery of fundamentals and the lack of real financing demand leading to an asset shortage continue to provide bottom support for the bond market from the asset allocation side. However, it cannot be ignored that the pressure of increased government bond supply in the second half of the year, the expectation of potential growth-stabilizing policy introductions, and the fact that bond valuations are already at historical highs are gradually reducing the overall cost-effectiveness of the bond market. The struggle between bulls and bears at this position will significantly intensify.
