- The yield on Chinese interbank government bonds fell collectively in early trading on Tuesday, with medium and long-term bonds leading the decline. The yield on the active 7-year government bond 2600007 fell significantly by 1.75 basis points to 1.5825%, showing a unilateral bullish trend independent of the global bond market's pullback.
- The interbank market's money supply is extremely abundant, with the weighted overnight repo rate DR001 for deposit institutions falling to around 1.25%. The anonymous click system (X-repo) continues to supply overnight funds exceeding 100 billion yuan, providing ample financial support for the decline in long-term interest rates.
- Traders pointed out that amid the reality of slowing momentum in fundamental data, the trend of domestic institutions concentrating their positions on medium and long-term bonds continues. Although technical factors show that the short-term downside space is limited by the overall policy window, the overall bullish oscillation pattern is difficult to shake.
Resonance of Bullish Sentiment in Cash and Futures Markets
On Tuesday, interbank cash bond yields were under pressure across the board. The latest transaction of the 30-year special government bond 2600002 fell to 2.2335%, down 0.95 basis points from the previous day's close; the yield on the active 10-year government bond 260005 touched 1.7410%, a decrease of 0.55 basis points. Meanwhile, all major contracts of government bond futures on the China Financial Futures Exchange rose, with the main 30-year contract TL2606 reaching a high of 113.000 yuan during the session, up 0.17% from the previous settlement price. The main 10-year contract T2606 also rose by 0.13%, reflecting active positioning by leveraged and hedging funds in long-term varieties.
Abundant Liquidity Strengthens Yield Floor
From the perspective of the funding structure, excess liquidity has become the core factor driving the bond market's independent trend. A fund investment manager in Shanghai pointed out that against the backdrop of a general rebound in sovereign bond yields of major global economies, the unique landscape of China's bond market is mainly due to the core logic of abundant money. The low operation of repo rates further reduces the interbank borrowing costs for financial institutions, with the 7-day repo rate once falling to a platform of 1.30%. The abundant low-cost funds force broad-based funds and proprietary trading desks of securities firms to extend durations continuously to obtain excess returns.
Reassessment of Term Spreads and Boundary Conditions
Analysts pointed out that the current spread between 30-year and 10-year government bonds has risen back to around 50 basis points. Under the condition of maintaining a loose overall funding environment, there is still room for the yield curve to flatten further. The fixed income research team at Huafu Securities believes that for the 10-year government bond yield to break below the 1.70% threshold, further clarification of the central bank's total liquidity tools or interest rate cut policies may be needed. If the pace of macroeconomic recovery exceeds expectations, long-term interest rates may experience a short-term valuation adjustment, but in the context of accumulated funds in allocation positions, any significant adjustment will be seen by the market as a buying opportunity.
