The 30-year Treasury bond led the gains, and the 10-year Treasury bond interest rate continued to hit a 22-year low

Chinese government bonds rose collectively on Tuesday amid rising expectations of further monetary easing.

On Tuesday on the 30th, Chinese government bond futures rose collectively at the beginning of the session, with the 30-year main contract up 0.56%, the 10-year main contract up 0.19%, the 5-year main contract up 0.15%, and the 2-year main contract up 0.08%.

The yield of active bonds of major interest rate bonds fell by more than 1bp, and the active bonds of 10-year treasury bonds fell by 2.05bp to 2.4675%, continuing to hit a new low in 22 years.

Money is flowing rapidly from the stock market into the bond market. According to third-party data compiled by analyst firm Zheben Investment Management Consulting, bond funds raised 13 times more money than equity funds in December last year.

Last week's sharp correction in the stock market, with the People's Bank of China (PBOC) intervening at a critical moment, with a 50bp across-the-board RRR cut and a 25bp "targeted rate cut", will help drive the loan prime rate (LPR), the benchmark for credit pricing, downward.

Pan Gongsheng, governor of the People's Bank of China, pointed out that the monetary policy has sufficient conditions for maintaining reasonable and abundant liquidity, ensuring large-scale centralized issuance of government bonds, and supporting the construction of investment projects, which will create a good monetary and financial environment for the operation of financial markets, including the capital market.

He also said that the difference between the monetary policy cycle between China and the United States is converging, and such a change in the external environment is objectively conducive to enhancing the autonomy of China's monetary policy operation and expanding the space for monetary policy operation.

The Qiu Xiang team of CITIC Securities recently reported that the investment reform measures are expected to be accelerated, and the support policies in the real estate field have been significantly increased, and interest rate cuts are expected to be taken in February.

Yang Fan's team at CITIC Securities pointed out that China's current real government bond interest rate (10-year) is 3.7% and the real lending rate is 5.3%, both of which are significantly high. Based on China's potential economic growth rate of 5%, China's preferred real interest rate is around 2.5%, about 2.8 percentage points lower than the current level. If real interest rates are to fall to desirable levels within the year, the central bank may need to guide the LPR down by at least 40bp.

However, it is worth noting that some analysts warn investors not to get caught up in the grand narrative. For example, the latest report of Shengang Securities pointed out that the current 30 years are equivalent to the "dragon one variety" of the bond market, and the market will copy the style of equity market pricing to the bond market, and the market will price long-term varieties with a grand narrative, further compressing the interest rate spread of the curve.

The agency believes that the logic of market trading is mainly three:

1. The logic of liabilities, this year's broad fund can have double-digit growth in scale or only insurance institutions, which is the logic of early December, and the start of the market is also an undermatch market brought up by the first-level bidding, but it is worth noting that the current yield of long-term bonds contains more transaction value, rather than allocation value.

2. The grand narrative and the "eagle" of the central mother, although the current short-end varieties are relatively reasonable in terms of capital pricing, the current logic of the market is that it is a combination of "the eagle of the central mother + the weak momentum of the endogenous recovery of the economy", so the long-term assets are used to express the pessimism of the long-term narrative, rather than the short-end varieties.

3. The entry of non-debt funds is reflected in the obvious defensive style of the equity market (equity sectors with debt-like attributes such as hydropower, thermal power, and transportation), and the negative feedback adjustment of the equity market under the snowball knock-in has become an important support for long-term assets.