summary
- Can't wait for the adjustment and extreme shorting. The RRR cut has landed, and the "good cashing bearish" has not been fully staged in the bond market, and the restraint of the take-profit order shows that the consistency of the bullish has not yet been reversed, and the atmosphere of "short squeezing" is still strong. The adjustment that cannot wait for the coupon strategy has further narrowed the capacity of the coupon strategy, resulting in three contradictions in the implementation of the current credit strategy.
- One of the contradictions: the coexistence of tail characteristics and low-grade duration. The curve bull flat state has lasted for more than a month, and the Spring Festival holiday is approaching, coupled with the recent acceleration of local government bond issuance, and the real estate policy has signs of re-exerting force, if the duration continues to be extended, is it no longer suitable for the current period with the characteristics of the tail stage? On the contrary, the low-grade duration is "in full swing". On the one hand, the trading of 3-5 year implied rating AA and AA (2) urban investment bonds tends to be active, especially the proportion of transactions in the 4-5 year range has risen to a stage high. On the other hand, implied AA-rated urban investment bonds also show duration rotation characteristics. It is worth noting that there is a certain difference in regional preference for the same duration, which is a manifestation of maximizing the margin of safety of the position. In addition to urban investment bonds, the situation of "not speculating" with two permanent bonds also appeared.
- Contradiction 2: The lower the cost performance, the greater the buying strength. From the perspective of net buying institutions, the rhythm is similar to that of the above-mentioned duration layout. Since the beginning of January, the weekly net purchase of credit bonds of more than 1 year by funds has exceeded 20 billion, and the reading has reached 23.3 billion in the past week, a new high since May. The difference is that in terms of net buying of credit bonds from 3 to 5 years, the fund bought 8.1 billion yuan in a single week, reaching a new high in 21 years. On the one hand, the net purchase scale of the fund is driven by the relative return assessment, and on the other hand, the client's demand for income is not low, which promotes the fund product manager to extend the duration and increase the static return. In fact, in the context of the short-term rapid decline in the income of the asset side, the slow decline in the liability side of various asset management products may be the key to the recent allocation behavior of the fund. First of all, the average lower limit of the performance benchmark of pure fixed income wealth management of joint-stock banks and city commercial banks is mostly between 2.6% and 2.8%, and if the duration is too short, it may be difficult to meet the cost requirements. Secondly, there is also the possibility of a slow decline in the cost of insurance liabilities, which has a positive pull on the duration of the manager's standard debt.
- Contradiction 3: There are many disturbance factors, but the market reaction is blunted. There is no lack of negative factors in the rotation of coupon assets "debt bulls", but the allocation side is blunted to it. However, at a time when the implementation of the strategy is slightly crowded, it is worth paying attention to whether the negative factors that are still continuing will have different results. First, the stratification of capital and liquidity will be the focus of the short-term bond market. Second, it is still difficult to raise pure fixed income wealth management, and the ability to incrementally allocate funds to stabilize the market needs to be tracked. Third, the number of urban investment entities that have announced that their debts are overdue has increased, and there is still a need to pay attention to the expectation level and pricing stability.
- In general, low-grade long-term assets, the rise of institutional risk appetite and the passivation of bearishness are more typical asset shortages, but the difference is that after the spreads of various coupon assets have been smoothed out one after another, the range of optional assets has shrunk sharply, and there are already few assets that can meet the rigidity of the liability side, and the further rise of risk appetite will exacerbate the strategic layout to break through the traditional understanding framework. Such an extreme allocation cycle not only requires stable capital and policy coordination, but also requires a continuous inflow of incremental funds, which both face certain challenges in the short term.
- In terms of strategy: 1) Holding urban investment bonds without speculation is the mainstream direction, and the current risk appetite will continue to increase, and the cost performance of the duration within the implied rating AA and AA (2) is limited, and it is recommended to maintain the layout within 2 years, and in non-key provinces, the platform of financially sound prefecture-level cities can appropriately pay attention to 2.5 to 3 years AA (2) bonds. 2) The subordinated bonds of banks around 4.5 years can be paid attention to, and assets can still be found near 3.1%, and accounts with stable liabilities are more suitable for such assets. 3) The trading window of the second permanent bond of the state-owned stock bank is narrow, and the interest rate spread protection of 4 to 5 years is low, so it is recommended to appropriately shorten the duration to around 2 years, so as to achieve both offense and defense.
- Risk Warning: The calculation is distorted, the calculation method needs to be adjusted, the expected credit event is exceeded, and the debt side of the institution is under pressure.
The text can't wait for the adjustment and extreme shorting. A year-end bond bull that exceeded expectations seemed to indicate in advance the characteristics of bonds at the beginning of the year. Since January, there has been endless discussion of monetary policy easing, which has also constituted the background color of bond bulls, and the increased volatility of equity assets during the period has played a supporting role. On January 15, the MLF interest rate failed to comply with market expectations, only briefly impacting sentiment, and the interest rate closed down on the same day; on January 24, Pan Gongsheng, governor of the People's Bank of China, said at a press conference of the State Council New Office that the reserve requirement ratio will be lowered by 0.5 percentage points on February 5, and the refinancing and rediscount interest rates for supporting small agricultural support will be lowered by 0.25 percentage points on January 25. The atmosphere of "short squeezing" is still strong. The adjustment that can't wait for will further narrow the capacity of the coupon strategy. Excess returns are becoming more and more difficult to earn, so that early buying and early returns and "short-selling" reinforce each other, resulting in three contradictions in the implementation of the current credit strategy.
[Contradiction 1: Coexistence of tail stage characteristics and low-grade duration]
The current embarrassment of the bond market - coupon assets below 3% account for 70%. Since August last year, in the past six months, the credit market has been supported by the theme of localized bonds and the flattening curve, from the short end to the medium and long end, from urban investment bonds to bank subordinated bonds, from large banks to small and medium-sized banks and permanent bonds, the excess interest rate spread has almost been wiped out, and the distribution of absolute returns has entered a relatively embarrassing stage. Based on the samples of urban investment bonds, industrial bonds and various types of financial bonds, 73% of the total stock of 36 trillion standard bonds are concentrated in 3% or less. In order to obtain the volume (the stock scale is more than 1 trillion yuan) and to achieve excess returns (more than 3.3%), it is difficult for financial bonds to meet the conditions, and urban investment bonds can indeed meet the requirements.
The problem with urban investment bonds is that short-term bond pricing has set a new history, and the only aggressive strategy is to lay out the duration layout. The spread between the 1-year AA- and AA(2) grades of urban investment bonds has broken through the historical low of December 2016 and remained between 8bp and 9bp (the valuation yield of the two is between 2.75% and 2.84%), while to find urban investment bonds around 3.3%, the maturity and rating are distributed between 3-year AA- and 4-year AA(2), which is also an asset that is still far from the historical low of the inter-grade spread. However, since mid-to-late December last year, the purchase of medium and long-term coupon assets has been relatively common, but it is mostly concentrated in high-liquidity varieties. In fact, due to the close to the year-end income assessment at that time, after the interest rate bond duration was shorted, investors could only extend the duration of high-grade general credit bonds or bank subordinated bonds, which catalyzed a wave of coupon asset income bullish market. With the recent acceleration of local government bond issuance and signs of renewed real estate policy, if the long-term continues to be extended, is it no longer suitable for the current period with the characteristics of the end stage?
On the contrary, the low-grade duration is "in full swing". On the one hand, the trading of 3-5 year implied rating AA and AA (2) urban investment bonds tends to be active, especially the proportion of transactions in the 4-5 year range has risen to a stage high.
On the other hand, implied AA-rated urban investment bonds also show duration rotation characteristics. Since late November, with the weakening of the cost performance of short-term urban investment bonds, the sinking strategy of 1-2 year AA-urban investment bonds has emerged, and recently, the weekly transaction of 2-3 year AA-urban investment bonds has exceeded 10 transactions for two consecutive weeks, which means that the duration preference will continue to increase.
It is worth noting that there are certain differences in regional preferences for the same duration. In the past 1.5 to two years, many of the district-level and county-level urban investment bonds have been distributed in Shandong, Sichuan, Hunan and Chongqing, with transaction returns generally above 2.8%, while the distribution of provincial-level platform bonds with the same maturity is mostly in Tianjin and Guangxi. In the above-mentioned regions, once extended to 2 to 2.5 years, there is a certain phenomenon of preference stratification, especially in Yunnan, Guangxi and Shandong, although the absolute return is attractive, but the allocation intensity is significantly reduced.
In 3 to 5 years, to achieve an increase in holdings at about 3.15%, Jiangsu, Zhejiang AA and AA (2) platform bonds are a more common choice, especially since January, Jiangsu, Hubei and Hunan and other places, the number of transactions during the period has hit a new high since the second half of last year.
The root of the regional preference difference is to maximize the margin of safety of the position. The remaining maturity of the allocation is more than 2 years, and the issuer region is mostly concentrated in provinces with relatively large financial volumes, first, to ensure that the issuer's qualifications are sound, but more importantly, to avoid disputes due after 2025. However, there is still no shortage of investors in the above-mentioned 2 to 2.5 years of key provincial urban investment bonds, which may be favored by investors for three reasons: first, the game policy mentality is biased, the second is to achieve the purpose of attracting funds from clients by increasing static returns, and the third is to buy high-yield assets in advance, in addition to early returns, and at the same time cope with the net incremental contraction of high-yield urban investment bonds this year.
In addition to urban investment bonds, the situation of "not speculating" with two permanent bonds also appeared. Although the yield of subordinated bonds of banks in 3 to 5 years is mostly at low levels since October 2022, the volatility of medium- and long-term bank subordinated bonds has been mostly lower than the same period in the past few years since the beginning of this year. It can be seen that although there are concerns about the heavy trading attributes, holding and not speculating has also become a more consistent operation for the two permanent bonds with a long duration.
The coupon asset curve has been further flattened, and the performance of urban investment bonds is particularly extreme, which is different from the previous flattening of the credit bond curve, suggesting that the pattern of debt bull reversal is not the same. The fact that urban investment bonds can be particularly independent of other assets is related to the resonance of the theme of chemical bonds, scarcity perception and institutional games, and at the same time points to the cramped strategic capacity of urban investment bonds.
[Contradiction 2: the lower the cost performance, the greater the buying intensity] The fund has become the main force behind the duration. From the perspective of net buying institutions, the rhythm is similar to that of the above-mentioned duration layout. Since the beginning of January, the weekly net purchase of credit bonds of more than one year by funds has exceeded 20 billion, and the reading has reached 23.3 billion in the past week, a new high since May, which is similar to the situation in late April. The difference is that in terms of the net buying of credit bonds from 3 to 5 years, the fund bought 8.1 billion yuan in a single week, reaching a new high in 21 years (also since observable data is available), and the net buying of other institutional types did not show similar characteristics. On the one hand, the net purchase scale of the fund is driven by the relative return assessment, and on the other hand, the client's demand for income is not low, which promotes the fund product manager to extend the duration and increase the static return. In fact, in the context of the short-term rapid decline in the income of the asset side, the slow decline in the liability side of various asset management products may be the key to the recent allocation behavior of the fund.
First of all, the average lower limit of the pure fixed income financial performance benchmark of joint-stock banks and city commercial banks is mostly between 2.6% and 2.8%, and it has not decreased significantly since January, which also restricts the scope of asset allocation to a certain extent - if the duration is too short, it may be difficult to meet the cost requirements.
Secondly, there is also the possibility of a slow decline in the cost of insurance liabilities. If the "(total investment income - pre-tax profit)/average investment assets corresponding to liabilities" of bond-issuing insurance companies is used as the estimation of the cost of the liability side, the cost of the liability side of insurance with different asset sizes is differentiated, and the cost of the liability side of insurance with total assets of more than 500 billion yuan will be about 3.2% in 2022 It is about 44bp higher than the annual average of the 10-year treasury bond interest rate at that time, and the price difference is used as a static assumption to estimate that the cost of the liability side of this type of insurance this year may be around 3% (that is, the cost of the liability side follows the decline of the asset side), and with the decline of the asset volume, the cost of the liability side will rise. Based on this, under the current level of standard bond income, insurance institutional investors may indeed have a positive pull on the duration of the manager's standard bond, which is one of the few channels to achieve more than 3% of the income (especially the non-standard supply is still shrinking), and the second is to effectively absorb the "premium" off to a good start.
In fact, in terms of insurance buying behavior, the allocation demand is also not low, 1) the net purchase of interest rate bonds exceeded 100 billion in December last year, exceeding the level of the same period in the past two years, 2) the net purchase of local government bonds exceeded 50 billion for two consecutive months, which is also better than the historical reading, 3) the net purchase of insurance in January from 3 to 5 years of the second permanent bond of the state-owned stock bank reached 13.4 billion.
In March last year, long-term bank subordinated bonds ushered in a long market, and the sinking stage of short-duration urban investment bonds came to an end, with the participation of funds, and some small and medium-sized banks provided incremental funds through the "platter bond base". At that time, the core logic was that the low-interest rate loans of policy banks and large banks at the beginning of the year caused crowding out of small and medium-sized banks, and the income generated by small and medium-sized banks was transferred to bond investment, while in the first quarter of last year, the allocation of local government bonds by urban and rural commercial banks and the second permanent bonds of state-owned banks was not weak. Since the beginning of this year, in addition to local government bonds, urban rural commercial banks have not been observed to increase their holdings of other bond varieties again, and will urban rural commercial banks outsource income again? It may be necessary to further observe the loan delivery situation in January and the implementation of the new capital regulations, the latter of which is mostly concentrated at the end of the quarter and before.
Therefore, the allocation of long-term credit bonds can be relatively sustainable, and in addition to the relative assessment of funds, the rigidity of the cost of insurance and wealth management liabilities will increase the preference for assets with duration through outsourcing. Considering that the fund's current net buying intensity is similar to that at the end of April last year, there is one more argument pointing to the extreme allocation of the bond market.
[Contradiction 3: There are many disturbance factors, but the market reaction is blunted]
There is no lack of negative factors in the rotation of coupon assets "debt bulls", but the allocation side is blunted to it. However, at a time when the implementation of the strategy is slightly crowded, it is worth paying attention to whether the negative factors that are still continuing will have different results. Although the RRR cut in February can hedge the demand for cash withdrawals during the Spring Festival, the centralized issuance of local bonds, loan delivery and tax payment, etc., the timing pressure and liquidity stratification still need to pay attention to the disturbance of leverage operation.
Second, it is still difficult to raise pure fixed income wealth management, and the ability to incrementally allocate funds to stabilize the market needs to be tracked. Since January, the growth rate of the initial fundraising scale of wealth management products has fallen, one is that the performance benchmark is low, and the attractiveness of wealth management products is not as good as before, and the other is that the wealth management issuance was repaired in January last year, and the base is high. In a market with low absolute returns, it is actually necessary to stabilize the allocation of more incremental funds and pay further attention to the contribution of financial increments.
Third, the number of urban investment entities that announced overdue debts increased, involving Weifang, Xi'an, Qujiang and Qingdao. Under the guidance of this round of bond policy, bond market investors' confidence in the underlying bonds is already stronger than that of non-standard bonds, which also constructs the "isolation" of the pricing of standard bonds. It should not be taken lightly that the entities that announce overdue debts may still be in the early stage, and if similar cases continue to increase in the future, there is still a need to pay attention to the expectation level and pricing stability.
In general, low-grade long-term assets, the rise of institutional risk appetite and the passivation of bearishness are more typical asset shortages, but the difference is that after the spreads of various coupon assets have been smoothed out one after another, the range of optional assets has shrunk sharply, and there are already few assets that can meet the rigidity of the liability side, and the further rise of risk appetite will exacerbate the strategic layout to break through the traditional understanding framework. Such an extreme allocation cycle not only requires stable capital and policy coordination, but also requires a continuous inflow of incremental funds, which both face certain challenges in the short term. In terms of strategy: 1) Holding urban investment bonds without speculation is the mainstream direction, and the current risk appetite will continue to increase, and the cost performance of the duration within the implied rating AA and AA (2) is limited, and it is recommended to maintain the layout within 2 years, and in non-key provinces, the platform of financially sound prefecture-level cities can appropriately pay attention to 2.5 to 3 years AA (2) bonds. 2) The subordinated bonds of banks around 4.5 years can be paid attention to, and assets can still be found near 3.1%, and accounts with stable liabilities are more suitable for such assets. 3) The trading window of the second permanent bond of the state-owned stock bank is narrow, and the interest rate spread protection of 4 to 5 years is low, so it is recommended to appropriately shorten the duration to around 2 years, so as to achieve both offense and defense.
Analysts of this report
尹睿哲 SAC执业证书编号：S1450523120003
李豫泽 SAC执业证书编号：S1450523120004
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