The "faucet" is about to be unscrewed!

Today, the Ministry of Finance published an article in the People's Daily entitled "Persist in Deepening the Structural Reform of the Financial Supply Side", which mentions: In terms of the meso-mechanism, it is necessary to strengthen the coordination and cooperation of fiscal and monetary policies and financial reforms, improve the mechanism of basic money supply and money supply regulation, support the gradual increase in the purchase and sale of treasury bonds in the open market operation of the central bank, and enrich the monetary policy toolbox.

The understanding of the market is: the Chinese version of QE is coming.

To put it simply: it's time to release the water!

Stimulated by this news, as of today's close, the main contracts of 30-year and 10-year Treasury bond futures have reached new highs. The main 30-year contract rose 0.49% to 108.35 yuan, and the 10-year main contract rose 0.17% to 104.845 yuan.

The news about the "Chinese version of QE" has sparked several waves of discussion this year.

Today, it is the Ministry of Finance itself that publishes the article, and it is published in the "People's Daily", and the meaning of this briefing is obvious.

The central bank estimates that it will not be long before it will start buying Treasury bonds on the open market.

1. Why is this matter so concerned?

A simple analogy between the United States and Japan will be illustrated.

The Federal Reserve and the Bank of Japan (QE) (quantitative easing), respectively, the Federal Reserve and the Bank of Japan directly buy their own government bonds to put money on the market.

The central bank and the Ministry of Finance are both government departments, and if the two cooperate with each other, theoretically they can continue to issue treasury bonds and the central bank can keep buying, which is equivalent to achieving unlimited water release.

However, printing too much money will inevitably lead to depreciation and inflation.

The U.S. dollar is the world's currency, and printing more can flow to other countries, but the U.S. is also facing inflationary pressure at home, so it will withdraw from QE after a few years.

Japan has been engaged in it for more than ten years, and the yen is a relatively international currency, and as a result, the yen has indeed been depreciating for a long time. Since Abenomics was introduced in 2012, the dollar has depreciated from 78 to 154 against the yen, doubling its value.

Because of the drawbacks, we are still reluctant to engage in the so-called QE......

2. Why do you do this now?

There are two main points:

First, the people are reluctant to increase leverage, but are reducing leverage.

At the end of 2023, the balance of personal housing loans was 38.17 trillion yuan, down 1.6% year-on-year.

Ordinary people buy fewer houses, take fewer loans, and repay more.

In terms of corporate loans, the balance of loans is increasing, but central enterprises and state-owned enterprises should be the main force...... (Don't talk about it)

Now, it is up to the government to increase leverage and support economic development.

The second reason is that the financial pressure is high.

The fiscal revenue and expenditure for the first quarter of 2024 released yesterday showed:

In the first quarter, the national general public budget revenue was 6,087.7 billion yuan, down 2.3 percent year-on-year, and the national general public budget expenditure was 6,985.6 billion yuan, up 2.9 percent year-on-year.

Revenues are decreasing, expenditures are increasing, and the deficit is almost 900 billion, which is naturally expanding.

In terms of government fund revenue (mainly land sales), in the first quarter, the national government fund budget revenue was 1,039.4 billion yuan, down 4 percent year-on-year, and the expenditure was 1,779.8 billion yuan, down 15.5 percent year-on-year.

The deficit is again more than 700 billion.

Therefore, yesterday the Ministry of Finance also said that it would "start the work of issuing ultra-long-term special treasury bonds in a timely manner."

Taken together, it is estimated that when the ultra-long-term special treasury bonds are issued, the central bank will take action and buy treasury bonds in the secondary market.

3. Affect geometry?

The key is to look at the scale of the treasury bond purchased.

At the beginning, it is estimated that there will not be much to buy, and the scale of the purchase may be increased in the future, depending on the situation.

For the economy, for the capital market, there may be no obvious effect at first.

But once this starts, it snowballs bigger and bigger.

If you look at the performance of the Japanese stock market in the chart below, the time when the stock market started to depreciate significantly was a little later (about a month) than when the yen started to depreciate significantly, and then the yen kept depreciating, and the Japanese stock market has been bullish.

Everyone said: When will A-shares get out of such a long bull?