- On Monday, the prices of Chinese interbank market bonds collectively fell, with yields of major liquidity varieties rising across the board. The yield on the 30-year special government bond 2600002 rose by 0.50 basis points to 2.2205%, while the yield on the active 10-year government bond 260010 increased by 0.65 basis points to 1.7305%.
- On Monday, the People's Bank of China conducted a reduced-scale operation in the open market, achieving a net withdrawal of 341.5 billion yuan in a single day, ending the previous state of net injection for 10 consecutive trading days, directly leading to a significant tightening of funds in the interbank market as the mid-year end approaches.
- Concerns about asymmetric liquidity have significantly increased, with overnight interest rates approaching a relatively high level of 1.50%, exacerbating traders' psychological expectations of cost pressure on the short-term liability side being transmitted to the medium and long-term cash bonds.
Net Withdrawal Breaks Continuous Injection Inertia
Today, the People's Bank of China conducted a 7-day reverse repo operation of 476.5 billion yuan in the open market, with the bid rate maintained at 1.40%. Due to the maturity of a large-scale reverse repo today, the net withdrawal of funds in the open market operation reached 341.5 billion yuan. Prior to this, due to liquidity arrangements around the Dragon Boat Festival, the monetary authorities had implemented net injections through the open market for 10 consecutive trading days. This sudden shift in policy tool direction, against the backdrop of the approaching quarter-end assessment and mid-year key nodes, brought certain pressure on market institutions' fund position management, causing short-term cash bond varieties that performed well in the early session to weaken.
High Liability Costs Suppress Long-End Sentiment
Feedback from interbank market traders indicates that the cost structure of interbank borrowing between non-bank financial institutions and banks has deteriorated in the short term. The overnight repo rate continuously approached the 1.50% threshold during the trading session, which is considered high within the central bank's desired interest rate framework. The elevated funding prices directly suppressed the day's cash bond trading activity, causing long-term and ultra-long-term government bonds to passively push up yields under low turnover conditions. A fixed income trader from a securities firm in North China pointed out that due to the lack of stronger macro data guidance or policy rate cut stimuli, the relatively high funding prices in the short term will significantly amplify the adjustment risk of long-term government bonds, and it is expected that cash bonds will maintain a narrow fluctuation trend throughout the week.
Fiscal Injection and Major Bank Allocation Create Safety Cushion
Although short-term funding constraints have not yet been eliminated, the fixed income research team at China Post Securities believes that the current round of bond market adjustments triggered by the mid-year effect is generally within a healthy and controllable range. As late June approaches, the concentrated injection of local fiscal funds at the end of the quarter will gradually begin, and it is expected to form a synergy with the demand for scale supplementation by major bank allocation at the mid-year point, thereby providing substantial support to the liquidity market. After the market sentiment has undergone multiple rounds of testing through policy communication such as the Lujiazui Forum, once the funding situation returns to a broad state in late June, the allocation window for short-term assets will reopen, which may guide long-term and ultra-long-term yields to explore downward breakthrough space again.
