Treasury bond futures fell across the board, with 30-year Treasury bond futures falling the most, and institutions said that the long-term is still bullish

China Times

2024-04-29 20:13Published on the official account of Beijing China Times

Treasury bond futures, which have been rising all the way this year, have fallen, and on April 24, as the bond market has taken a sharp turn, treasury bond futures have also fallen, of which the main contract of 30-year treasury bond futures closed down 1.17%, the second largest one-day decline this year. As of the close of trading on April 29, 30-year Treasury bond futures fell more than 0.81%, 10-year Treasury bond futures fell more than 0.4%, 5-year Treasury bond futures fell more than 0.3%, and 2-year Treasury bond futures fell 0.14%.

"The decline in treasury bond futures has benefited bond products that have hedged the value of cash bonds and shortened their duration through treasury bond futures, and under the seesaw effect of stocks and bonds, the correction of the bond market has brought some benefits to the stock market. Li Xin, a trader in the futures market, told reporters that from the rhythm of the short-term bond market, the market in the past two days is more critical, and if it rises further, it may trigger some investors to redeem their wealth management products.

30-year Treasury futures fell the most

"Since April 24, there has been a significant pullback in the main treasury bond futures contract, which is related to the central bank's repeated mention of interest rate risks in April. At its Q1 meeting on April 3, the central bank said that it should also pay attention to changes in long-term yields during the economic recovery. On April 18, the State Council Information Office said at a press conference that it is necessary to prevent the involution of competition and the idling of funds due to low interest rates. Zhu Jintao, a researcher at Everbright Futures Treasury Bonds, said in an interview with a reporter from the China Times.

At the same time, Liu Xiaoyi, an analyst at Yide Futures, said in an interview with a reporter from the China Times that the recent rapid adjustment of treasury bond futures from a high level, and treasury bond futures have fallen sharply in four trading days, which has attracted the attention of the market. The trigger for this bond market adjustment stems from the statement made by the head of the central bank in an interview with the Financial Times on April 23 that long-term government bond yields will generally operate within a reasonable range that matches long-term economic growth expectations.

Liu Xiaoyi said that combined with the previous central bank's special mention of "paying attention to long-term interest rate changes" at the first quarter of the monetary policy implementation meeting, the current regulator believes that the rapid decline in interest rates in the early stage has led to low long-term interest rate valuations, and is worried about risk accumulation. With the statement at the policy level, the fear of funds has heated up, and on April 24, under the guidance of long-term bonds and ultra-long bonds, the market began to adjust.

In addition, the recent convergence of funds is another important factor driving the adjustment, on April 8, the market interest rate pricing self-discipline mechanism issued an initiative, requiring banking financial institutions to prohibit the way of manual interest rate replenishment of high interest savings, and complete the rectification by the end of April.

"This move has a greater impact on large commercial banks, due to the friction of the return of funds to the banking system after the manual interest rate is banned, at the end of the month, the financial outflow of large banks has decreased significantly, resulting in the tightening of interbank funds, and the short-term interest rate has also been adjusted to a certain extent, and the yield of treasury bonds of various maturities has risen by more than 10BP in four trading days. Liu Xiaoyi said.

Bond market sentiment has cooled, and ultra-long-end Treasury yields have rebounded from low levels since April 24, with a steep yield curve. Zhu Jintao said that the long-end treasury bond yields continue to hit new lows, diverging from the long-term good fundamentals, in this context, the central bank's expected guidance has led to the cooling of bond market sentiment, ultra-long-end treasury bond yields rebounded at a low level, and the yield curve has steepened.

"Judging from the performance of the four trading days, the biggest decline is the 30-year treasury bond futures, which are more than 3 yuan lower than before the adjustment. At present, the tightness of funds before May Day is likely to continue. The tightness of the capital side this time is caused by the reduction of capital and financial outflows by large banks in the short term after the suspension of manual interest rate supplements, which is a staged tension caused by the event, rather than a shift in monetary policy. Liu Xiaoyi said that at the beginning of this week, the central bank continued to hedge in full in the open market, indicating that the current level of interbank liquidity is generally agreeable, and there is no need to increase investment. After the phased financial crunch at the end of April, it is expected that the capital will return to a stable state after May Day.

Futures hedging highlights its advantages

With the decline in the price of treasury bond futures, as of now, the modified duration of CTD bonds corresponding to the main contracts of 2-year, 5-year, 10-year and 30-year treasury bond futures is 1.8073, 4.1042, 6.298 and 16.9243 respectively, which shows that the yield also rose by 1BP, and the 30-year treasury bond futures fell by about 9.4 times that of the 2-year, 4 times of the 5-year and 2.7 times of the 10-year.

"With ultra-long-term Treasury yields rising more and longer durations, 30-year Treasury futures fell even more. In terms of funds, the central bank still maintained a reverse repurchase scale of 2 billion yuan per day at the end of the month, and the funding rate rose slightly under the influence of the month-end effect, the latest market showed that DR001 was reported at 1.83% and DR007 was reported at 2.09%, but the overall upward range was not large, and the capital side was slightly converged but the overall situation was controllable. Zhu Jintao said.

It is understood that at present, the groups participating in treasury bond futures trading include natural persons and legal persons, of which legal persons include general legal persons (self-operated accounts of non-financial enterprises) and special legal persons (proprietary securities firms, special fund accounts, securities asset management, public offerings, private products, futures asset management, commercial banks, and insurance institutions). In terms of proportion, institutions holding cash bonds are the main force in treasury bond futures trading, such as brokerages and funds.

"Brokerages participate in both proprietary and product forms, and as bonds continue to strengthen since the beginning of the year, the popularity of bond funds has been very high, and the number and scale of establishments have been rising. In the short-term drastic adjustment, most bond bases will have obvious varying degrees of drawdown. However, judging from the cash bond trading data in the interbank market, bond funds have not yet shown signs of redemption. Liu Xiaoyi said.

From the perspective of the purpose of participation, banks, insurance and public funds mainly hedge, avoid the risk of cash bonds, and replace long. Zhu Jintao said that private equity funds and brokerage companies mainly use treasury bond futures to achieve the purpose of thickening income and maintaining a stable net value. For bond funds, the decline in the price of cash bonds will lead to a backtest of the net value of the product. Treasury bond futures can achieve the effect of risk aversion, and if the fund product sells treasury bond futures for hedging while holding cash bonds, it can achieve the effect of maintaining a stable net value.

"The decline in Treasury futures once again highlights the advantages of futures hedging, and the current round of bond market has risen for as long as five months from November 2023 to mid-April 2024, corresponding to the decline in the yield of 10-year Treasury bonds from 2.7% to 2.2%. Institutions that opened positions in bonds at the beginning of the year have made considerable gains so far, and the current adjustment is not enough to affect their performance. Liu Xiaoyi said.

However, Liu Xiaoyi said that for bond funds that opened positions at the beginning of the second quarter, if they did not use treasury bond futures hedging, the current book is expected to have a considerable drawdown, and the performance of the bond base that established hedging positions in the early rise will be relatively stable, reflecting a strong anti-risk ability. In addition, the recent rise in the stock market has led to a rebound in market risk appetite, and the widening of credit bond risk premiums has further suppressed the valuation of credit bonds. In contrast, convertible bonds, which benefited from higher underlying stock prices, performed better.

Institutions say the long-term remains bullish

With Treasury futures correcting sharply, the next focus to focus on is the month-end Politburo meeting and the pace of government bond issuance in May. Industry insiders said that at present, the market is not much divided on the fundamentals, and the high-frequency data does not give a signal that the economic repair is accelerating. The focus of the market is on whether there will be incremental economic stimulus at the Politburo meeting at the end of the month, as well as news related to the issuance of trillions of special government bonds.

Liu Xiaoyi said that the issuance of special bonds in the first four months of this year was slow, and it is expected that the issuance of special bonds will accelerate from May to September. However, for the bond market, the logic of asset shortage has not changed in the context of the current real estate downturn and localized bonds. Therefore, it is difficult to say the end of the bond bull market, and short-term disturbances are difficult to shake the foundation of bond bulls.

In addition, Zhu Jintao said that the actual GDP growth rate in the first quarter exceeded expectations, but the nominal growth rate was weak, and the economic sub-data showed that the current problem of insufficient demand still exists. Next, pay attention to the upcoming April PMI data, if the economic recovery exceeds expectations, it will form a certain negative for Treasury bond futures. As monetary policy maintains an accommodative tone and the weak economic recovery continues, the long-term bull market pattern in the bond market will continue.

"In the short term, after the recent rapid correction, the yield of 30-year treasury bonds has returned to the 2.55% line, but the current ultra-long-term special treasury bonds have not yet landed, and the supply pressure has not yet appeared, once the 1 trillion yuan of ultra-long-term special treasury bonds are issued in the second quarter, 30-year treasury bond futures still have room to continue to decline. Under the premise that the capital side is expected to be stable, the short-end 2-year treasury bond futures will continue to have limited adjustment pressure, and the future treasury bond futures will still be relatively strong in the short end relative to the long end. Zhu Jintao said.

"Judging from the current valuation of spot bonds, in four trading days, the yields of 30-year treasury bonds and 10-year treasury bonds have risen by 20BP and 17BP respectively, and the adjustment is not small. At the same time, looking back at the adjustment market in the bull market of treasury bond futures in the past three years, the adjustment range of 10-year treasury bond spot bonds is in the range of 10BP-21BP. Treasury bonds with a maturity of 5 years and below have risen by 10BP-15BP, close to the high point in early March. Liu Xiaoyi said.

Liu Xiaoyi said that combined with the current fundamental situation of moderate economic repair, considering the acceleration of government bond issuance in May, the tightening of monetary policy is unlikely, and the short-term treasury bonds of various maturities continue to have limited room for adjustment. Before the Politburo meeting landed, the futures bond may maintain a weak and volatile pattern. In the long run, considering the policy goal of reducing the real financing rate this year, and the moderate recovery of inflation throughout the year, the real interest rate will still need the nominal interest rate to guide the downward trend in the future, and the treasury bond futures will rise again after the bull market stops.

Editor-in-charge: Shuai Kecong Editor-in-chief: Xia Shencha

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