The Chinese dollar bond market rebounded, and after the U.S. bond interest rate fell, it may welcome the gold allocation window

Finance Associated Press, November 29 (Editor Yang Bin) Since November, the long-sluggish Chinese dollar bond market has rebounded. Last week alone (the week of November 21-November 27), the Chinese dollar bond index (Bloomberg Barclays) rose by 0.51% on a weekly basis, partly related to the decline in US Treasury rates. Institutions are optimistic about the two key industries of urban investment and real estate, especially when the "package of bonds" continues to land, and the interest rate difference between domestic and foreign urban investment bonds needs to be digested by foreign institutions.

U.S. Treasury interest rates fell, and the U.S. dollar bond market rebounded for more than a month

Since the Federal Reserve entered the interest rate hike cycle and the domestic real estate thunderstorm incidents, the Chinese dollar bond market has fallen into a long-term downturn. Since November, the Chinese dollar bond market has rebounded.

Chart: Performance of the China USD Bond Index

(Source: Guoyuan International Securities, compiled by the Financial Associated Press)

According to data from Guoyuan International Securities, in the week of November 21-November 27 alone, the China US Dollar Bond Index (Bloomberg Barclays) rose 0.51% week-on-week, and the Emerging Market US Dollar Bond Index rose 0.96%. The latest price of the Chinese dollar bond investment grade index was reported at 173.8812, a weekly increase of 0.34%; The latest price of the Chinese dollar bond high yield index was 130.9155, up 1.72% for the week.

In terms of industries, the two key industries of real estate and urban investment have generally rebounded. According to the data of CICC's fixed income team, in terms of real estate, Vanke's dollar bond curve rose by $1-10 to $64-98 in the week of November 21 to November 27, Longfor's dollar bond curve rose by $10-12 to $54-67, Gemdale's US dollar bond due in 2024 rose by about $11 to around $51, and Metro rose by about $6-12 to $30-56.

From November 21 to November 27, 1-2Y Capital Group rose $3.3-4.4, 1.83Y Yancheng Oriental rose $1.75, 287D Changchun Chengfa rose $1.38, 2.03Y Kunming Rail Transit rose $1.22, and 305D Weifang Urban Construction rose $1.2.

In terms of finance and other industries, bank AT1 yields were mixed, with large banks ranging from -7bp to 14bp, while in the state-owned enterprise sector, Sinopec's long-end yield fell by 2-8bp, and Sinochem's long-end yield fell by about 4-11bp, while the TMT sector rose mostly, Alibaba and Tencent mostly declined, and Baidu rose mostly.

Guosen Securities' overseas research team believes that the downward trend window of U.S. bond interest rates has opened, and U.S. dollar bonds have ushered in a gold allocation window. Under the influence of weaker inflation and retail sales data, superimposed on the expectation of interest rate cuts and the improvement of the supply and demand pattern of U.S. bonds, the 10-year U.S. Treasury interest rate continued to fall, falling below the previous support level of 4.5%, and quickly approaching the next support level of 4.34%, while the short-end interest rate fell by a small amount, and the U.S. Treasury yield curve turned bullish. Looking ahead, the U.S. economy is showing signs of weakening, expectations of monetary policy easing are rising, and the 10-year U.S. Treasury rate has confirmed the previous high of 5%.

Urban investment dollar bonds are sought after, and real estate dollar bonds are mysterious

With the advancement of the debt policy, domestic urban investment bonds have recently been sought after. In the case that domestic urban investment bonds are almost "hard to find", more and more investment institutions pursuing high yield are targeting investment opportunities in the overseas urban investment dollar bond market. According to the data of Enterprise Early Warning, as of November 29, there were 2,746 Chinese-funded US dollar bonds with a cumulative scale of US$805.886 billion, and 414 urban investment bonds with a cumulative scale of US$73.113 billion.

Guosen Securities' overseas research team recommends paying attention to investment-grade US dollar bonds with high onshore and offshore interest rate spreads and low credit risk, such as urban investment, financial and non-financial sectors. Investment grade yields and onshore and offshore interest rate spreads are both at historically high levels, and valuations are attractive, allowing for appropriate long-term stretching to capture capital gains.

According to media reports, for the occurrence of domestic and foreign price differences, some private equity practitioners said: First, the monetary policy cycle is different. The Federal Reserve has continued to raise interest rates, and the risk-free rate of return has been rising, and the domestic "self-oriented" has maintained a loose monetary policy, and the risk-free rate of return is relatively stable; second, the composition and trading habits of investors in the two markets are different, and the rating models of the three major overseas rating companies for urban investment are also slightly different from those in China.

"The interest rate differential between domestic and foreign urban investment bonds needs to be digested by foreign institutions. The investment director of a foreign-funded institution in China believes that after the launch of the debt package, the yield of domestic urban investment bonds has been compressed, while the response of overseas institutions has lagged.

Xu Liang, chief analyst of fixed income at Debang Securities, also said that in the case of the continuous implementation of the package of bonds, it is recommended to focus on urban investment dollar bonds in Shaoxing, Chongqing, Shaanxi and other places according to the preference of investment style, the stability of the product liability side and the research strength of institutions.

The CICC fixed income team is more optimistic about the high-yield bonds accumulated by real estate. Affected by the recent favorable policies, the dollar bonds of some leading real estate companies have rebounded, and in the future, it is necessary to focus on the implementation of financing support policies, and consider supporting real estate companies with clear landing and good business layout.

For real estate bonds, Xu Liang believes that some real estate companies with relatively large sales flexibility, relatively low debt ratios, and projects are mostly located in high-quality first- and second-tier cities.

Guosen Securities' overseas research team believes that the real estate sector is still in the stage of slow recovery due to the fundamentals, and the internal recovery differentiation is still obvious, and it is expected that there will be short-term game opportunities under the boost of the whitelist expansion policy. The above-mentioned foreign institutions in China also expressed optimism about the boost of the whitelist policy on real estate dollar bonds.

Chart: Chinese dollar bonds are worth paying attention to

(Source: Debang Fixed Income, compiled by the Financial Associated Press)

(Finance Associated Press Yang Bin)