Summary of views
Core view: neutral 10Y long-end interest rate is close to the low before last year, if there is no interest rate cut MLF and OMO, the downside space is difficult to open; On the other hand, short-end interest rates benefit from the fact that banks do not lack funds and indicators, even if the interest rate cut lands, it is the short-end interest rate that takes the lead in falling, and it will be more advantageous to do steep curves (long short and long).
Economic growth: more High-frequency data shows that the economic repair has entered a dead phase. In the manufacturing industry, the blast furnace operating rate declined, the PTA operating rate continued to decline, and the all-steel tire operating rate rebounded slightly; In terms of infrastructure, the center of gravity of asphalt operating rate has shifted downward, and rebar tables need to be slightly lower than the level during the lockdown period in the same period last year; In terms of consumption, the operating rate of semi-steel tires has rebounded positively; In terms of real estate, the weekly transaction area of commercial housing in first-tier and second-tier cities fell, while the weakest performance in third-tier cities was significantly lower than the average line.
The May PMI was 48.8%, maintaining a downward trend for four consecutive months. Overall, PMI demand, production, procurement and inventory have all declined, and are still in the "active destocking" stage
Inflation: On the side CPI readings in May are expected to be broadly unchanged from the previous month. High-frequency data showed that the price index of edible agricultural products fell by 5.75% year-on-year, compared with -7.45% in the previous month. Among food prices, drag items pork -6.09%, eggs -2.16%, fish -11.61%; Gains were +10.14% for vegetables and +8.41% for fruits.
Funds: More At the beginning of the month, the funds were loose, and the funds of various terms fell significantly. DR001 is down 10.02bps to 1.30% and R001 is down 21.87bps to 1.93%.
Since late last month, loan demand, implied by high-frequency data on bill rates, has risen slightly, but remains at a low level during the year. DR007 is expected to remain volatile within 2%, and the funding rate will be difficult to tighten in June.
Monetary Policy: Neutral The description of monetary policy at the Politburo meeting in April continued the previous attitude, that is, "prudent monetary policy should be precise and powerful", which means that monetary policy will continue to remain steady and loose when the endogenous momentum of economic improvement is not strong, and market interest rates fluctuate around policy interest rates, and it may be difficult to see total adjustments such as interest rate cuts in the short term.
Fiscal policy: neutral The deficit rate will rise to 3% in 2023 and the new special debt will be about 3.8 trillion yuan, which is less than market expectations. Other quasi-fiscal instruments may be continued. The general revenue budget for 2023 increased by 6.7% year-on-year, mainly due to expectations of substantial economic recovery and reduced tax refunds.
Fed: Bearish Philadelphia Fed President Harker and Fed Governor Jefferson, who have voting rights this week, both support a pause in June interest rate hikes, while the market's eyes have switched from June to July rate hikes. Strong employment data and core inflation are the underlying reasons for the Fed to raise interest rates.
Exchange rate: short In the past month, the dollar has climbed above 7.11 against the offshore yuan in response to the theme that China's economy is inferior to the United States. After that, a large number of short-term debt issuances will tighten interbank liquidity, and the dollar is likely to continue to strengthen.
Review of recent events
Review of recent events
Data source: Wind, Zijin Tianfeng Futures
Funding rates were loose in early June
OMO land was released in early June
- 5.29~6.5 The central bank invested a total of 81 billion yuan in 7-day OMO, 43 billion yuan at maturity, and 38 billion yuan in OMO. At the beginning of the month, OMO maintained a land volume of 2 billion yuan.
Data source: Wind, Zijin Tianfeng Futures
Funding rates were loose at the beginning of the month
- At the beginning of the month, the funds were loose, and the funds of various terms fell significantly. DR001 is down 10.02bps to 1.30% and R001 is down 21.87bps to 1.93%.
- Since late last month, loan demand, implied by high-frequency data on bill rates, has risen slightly, but remains at a low level during the year. DR007 is expected to remain volatile within 2%, and the funding rate will be difficult to tighten in June.
Data source: Wind, Zijin Tianfeng Futures
The yield curve continues to steepen
- In early June, the number of pledged repos approached 800 million. Shibor3M closed at 2.19% on June 5, down 4.5bps from last week, the 1-year Treasury closed at 1.93%, down 8.4bps from last week, and the 10-year Treasury closed at 2.695%, unchanged from last week. Term spreads continue to widen and the curve is steep. In early June, the transaction volume of pledged repurchase by commercial banks increased significantly from the previous month, with an average daily trading volume of 7,975.034 billion yuan, an increase of 533.683 billion yuan from late May. Related to the easing of the funding rate.
Data source: Wind, Zijin Tianfeng Futures
1Y interbank certificate of deposit issuance interest rate continued to decline
- In early June, the bill interest rate turned upward, weaker than the interest rate level in January~March, and credit may remain in a low state in June.
- Interbank certificate of deposit rates declined. The 1-year CD issuance rate of the National Stock Bank is about 39bp below the MLF. Linked to the accommodative funding rate, we believe banks are neither short of money nor indicators, which would be positive for short-end rates.
Data source: Wind, Zijin Tianfeng Futures
Primary market issuance tracking
Treasury auctions are sentimental
- Last week's positive mood at Treasury auctions was linked to a bull market in bonds. The weighted ratio of government bonds issued is lower than the median market forecast, indicating good market demand. The marginal multiple of the ultra-short end interest rate is higher than that of the ultra-long end, which means that the market needs to shorten the duration.
Data source: Wind, Zijin Tianfeng Futures
May PMI: Proactive destocking
May PMI: Proactive destocking
- The May PMI was 48.8%, expected to be 49.4%, and the previous value was 49.2%, maintaining a downward trend for four consecutive months, and the market reacted to this data as bullish. Overall, PMI demand, production, procurement and inventory have all declined, and are still in the "active destocking" stage.
- What to watch out for last month's PMI are:
- 1) Even if the overall is in the stage of decline, the downward range is lower than last month, and most of the sub-items have not fallen beyond seasonality. Specifically, new orders -0.5% (benchmark -0.87%), purchases -0.56% (benchmark -3.58%), finished goods inventory -0.5% (benchmark -1.08%), raw material inventory -0.3% (benchmark -0.75%). However, production performance was more pessimistic, down -0.6% q-on-month (benchmark-0.43%), and raw material purchase prices were also weak, -5.6% q-5.6% q-oq (benchmark-3.58%), suggesting that PPI will continue to decline in May.
- 2) At the end of overseas interest rate hikes, demand did not decline significantly and was in an upward channel, while domestic demand was weak.
Source: Wind, Zijin Tianfeng Futures
There is still room for long basis
There is still room for long basis
- The ten-year treasury bond futures T2309 currently have a basis of about 0.53 yuan, which is at a low position compared with other contracts, and there is still room for long basis.
- After the switch of the main contract, the long-short contradiction is not as crowded as before, and with the decline of the cash interest rate, the confidence of the bulls has gradually declined.
Data source: Wind, Zijin Tianfeng Futures
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