Treasury Bond Futures Narrow Range The central bank's RRR cut took effect today

On December 15, the main contracts of various varieties of Treasury bond futures fluctuated in a narrow range. As of the afternoon close, the 10-year main contract was up 0.01%; the five-year main contract was up 0.03%; and the two-year main contract was up 0.02%.

Today, the central bank's open market carried out 500 billion yuan of 1-year MLF and 10 billion yuan of 7-day reverse repurchase operations, and the winning interest rates were 2.95% and 2.20% respectively. According to the data, there are 10 billion yuan of reverse repurchase and 950 billion yuan of MLF due today. In addition, the central bank's RRR cut took effect today.

On December 6, Chinese Bank decided to reduce the reserve requirement ratio of financial institutions by 0.5 percentage points on December 15, 2021 (excluding financial institutions that have implemented a 5% reserve requirement ratio), which will release about 1.2 trillion yuan of long-term funds. Even if the RRR cut is significant for the macro environment, the bond market's response has been relatively limited. Compared with the closing price on December 3, the 10-year Treasury active bond 210009 oscillation on December 14, the yield fell by about 1BP, and the price of the main 2203 contract for the 10-year Treasury bond rose by less than 0.2%.

From a short-term perspective, the oscillating performance of the bond market is due to the fullness of the early easing expectations on the one hand, and the strengthening of the market's wide credit expectations on the other hand.

In addition to the reduction of the reserve requirement ratio, the meeting of the Political Bureau of the CPC Central Committee and the Central Economic Work Conference have been held successively, which have set the tone for next year's economic work while summing up this year's economic situation. The meeting of the Political Bureau of the CPC Central Committee stressed: Next year's economic work should be carried out in a steady manner and seek progress in a steady manner. Macroeconomic policies should be prudent and effective, and we should continue to implement a proactive fiscal policy and a prudent monetary policy. Proactive fiscal policy should improve efficiency and pay more attention to precision and sustainability. Prudent monetary policy should be flexible and moderate, and maintain reasonable and sufficient liquidity.

In addition, the Central Economic Work Conference pointed out that China's economy is resilient and the long-term fundamentals will not change. While fully affirming the achievements, we must see that China's economic development is facing the triple pressure of demand contraction, supply shock, and expected weakening, and adhere to the general tone of the work of seeking progress in a stable manner.

Since the third quarter, the fundamental demand side of the problem has been highlighted, the social finance credit data representing financing demand has come out of the downward trend of bottoming out, and the relevant departments have also made corresponding measures. At the end of August, the central bank held a symposium on the analysis of the monetary and credit situation of financial institutions, and at the same time accurately supported the real economy through structural tools such as refinancing. From past experience, counter-cyclical adjustment needs to go through a process from wide money to wide credit, and the reversal of the downward momentum of interest rates often occurs at the end of the easing cycle.

For now, the marginal loosening of monetary policy seems to be just beginning, not about to end. In addition, there is also a certain distance between the expected heating up and the landing of wide credit, even if the repair of wide credit and demand side may be the future trend, but the long-term logic is over-interpreted in a short period of time, and behind it is more emotional fluctuations. After the central bank announced a comprehensive RRR cut, the bond market may continue to fall in the next two trading days.

This article originated from Flush Finance