Bills market
Market review: In April, the bill interest rate fell as a whole, and the monthly average discount rate of 3M and 6M national stock notes (hereinafter referred to as the "bill interest rate") was 1.55% and 1.50% respectively, down about 53bp and 44bp respectively from March, and the bill curve steepened, in line with our previous expectations.
From the perspective of economic fundamentals, the manufacturing PMI recorded 50.4% in April, down 0.4 percentage points from March, the new orders index and the new export orders index recorded 51.1% and 50.6% respectively, down 1.9 and 0.7 percentage points respectively from March, and the seasonal level in the same period decreased by 1.8 and 2.4 percentage points respectively. The manufacturing PMI is located near the withering line, and there is no significant upward basis for the bill rate.
From the perspective of financial fundamentals, in terms of resident credit, in April, second-hand housing "price for volume", new housing sales were sluggish, and many first- and second-tier cities have recently optimized the housing purchase restriction policy, and the policy effect still needs to be further observed; In terms of corporate credit, the large net repayment of PSL in April, from the perspective of historical data, the top five months of PSL net repayment since 2015 were November 2020, July 2021, August 2021, May 2022, June 2023, and in the above months, the monthly pivot change range of bill interest rates was -16bp, -11bp, -37bp, -58bp, 15bp (the seasonal levels from 2019 to 2023 in the same period are -17bp, -16bp, -22bp, -36bp, and 23bp respectively), the probability of the bill interest rate falling more than the seasonal level or the upward trend is not as high as the seasonal level, and the net return of PSL may drive the supporting financing demand to decline, which is bullish for bills.
From the perspective of funds, May is a small month for credit, a big month for tax payment, the issuance of special bonds is expected to accelerate, the net financing scale of government bonds may exceed 1 trillion yuan, pay attention to the impact of the central bank's investment efforts and manual interest supplements, the volatility of the capital side may be higher than in April, and the DR007 center may rise marginally.
Outlook for the bill market in May: From the perspective of historical trends, since 2019, the 6M bill interest rate pivot in May has been lower than that in April, and the 6M bill interest rate pivot in May is lower than the bill interest rate on the first trading day of May, but the bill interest rate on the first trading day can be broken through in the month. From the perspective of comprehensive economic fundamentals, financial fundamentals and funds, it is expected that the center of the 6M bill interest rate may fall at 1.15%-1.25%, the high point of the bill interest rate may rise to around 1.35%-1.40%, and the low point of the bill interest rate may be around 1.1%.
Last week's liquidity: Last week (2024/5/6-2024/5/11), the net withdrawal of open market operations was 438 billion yuan, the average R007 was 1.89%, higher than the 7-day reverse repo rate of 9bp, the average 1-year joint-stock bank NCD issuance rate was 2.10%, lower than the 1-year MLF interest rate of 40bp, and the average proportion of overnight repo was 80.69%, below the warning line of 90%; Net financing of credit debt was negative.
Central bank operation and market outlook: this week's reverse repurchase maturity of 10 billion yuan, NCD maturity of 707.2 billion yuan. This week, 2 national bonds are planned to be issued, with an issuance amount of 227 billion yuan and a net financing amount of 116.96 billion yuan, a decrease of 44.71 billion yuan from last week; 20 local bonds are planned to be issued this week, with an issuance amount of 108.82 billion yuan and a net financing amount of 30.061 billion yuan, a decrease of 75.02 billion yuan from last week; and 3 government and financial bonds are planned to be issued this week, with an issuance amount of 19 billion yuan and a net financing amount of -294.67 billion yuan, a decrease of 461.52 billion yuan from last week.
1. The trend of bill interest rates in April
In April, the overall interest rate of the bill interest rate declined, and the monthly average discount rate of 3M and 6M national stock notes (hereinafter referred to as the "bill interest rate") was 1.55% and 1.50% respectively, down about 53bp and 44bp respectively from March, and the bill curve steepened, in line with our previous expectations.
From the perspective of seasonal level, the average decline in the interest rate of 6M bills in April from 2019 to 2023 is 27bp compared with that in March, and the decline in the interest rate of 6M bills in April 2024 is significantly higher than the seasonal level, reflecting that credit supply is still weak in April and the impulse demand of commercial bank bills is strong. In April, the absolute value of the 6M note rate was at the lower end of the seasonal level, and the value of the difference between the 6M note rate and the OMO rate was also close to the lower edge of the seasonal level.
2. Analysis of influencing factors in the bill market
2.1 Economic fundamentals
From the perspective of economic fundamentals, the correlation between the interest rate of 6M bills and PMI is strong, which is mainly due to the fact that, on the one hand, in the primary market of bills, when the economic fundamentals improve, enterprises are active in business and trade activities, and the willingness of enterprises to issue bills increases, and the supply of bills is added in the primary market, while when the economic fundamentals are weak, the business activity of enterprises declines, the willingness to issue bills decreases, and the supply of bills in the primary market shrinks. This is mainly reflected in the strong trend correlation between the stock of undiscounted bank acceptance bills and the trend of PMI. On the other hand, in the secondary market of bills, bills are more used as a tool for bank credit adjustment, when the economic fundamentals are good, the credit demand of residents and enterprises is higher, and the demand for bills by banks declines, and even the bills are sold in the secondary market to replace the credit line, on the contrary, when the economic fundamentals are weak, banks usually rely on on-balance sheet bill financing to adjust credit indicators. This is mainly reflected in the fact that when the PMI continues to be above the withering line, the scale of bill financing generally declines sharply, and when the PMI continues to be below the withering line or fluctuates near the withering line, the scale of bill financing generally increases. Under the joint effect of supply and demand in the primary market and the secondary market, the interest rate of 6M bills shows a strong correlation with the PMI index.
The manufacturing PMI recorded 50.4% in April, down 0.4 percentage points from March, and the seasonal level for the same period was down 0.89 percentage points (the average of changes in the same period from 2015 to 2023, the same below). From the perspective of demand sub-items, the new orders index and new export orders index in April recorded 51.1% and 50.6% respectively, down 1.9 and 0.7 percentage points respectively from March, and the seasonal level in the same period decreased by 1.8 and 2.4 percentage points respectively. In terms of enterprise types, the new orders indices of large enterprises, medium-sized enterprises and small enterprises in April were 50.6%, 51.9% and 51.2% respectively, down 2.8, 1.3 and 0.7 percentage points respectively from March, and the seasonal levels in the same period decreased by 2.8, 1.4 and 0.9 percentage points respectively, and the demand of small enterprises was relatively better than that of large and medium-sized enterprises. On the whole, external demand was relatively good in April, domestic demand still needs to be boosted, and the interest rate of 6M bills fell to the lowest point of the year.
Since 2015, there is a 33% probability that the manufacturing PMI will rise, 44% of the probability will fall, and 22% of the probability may be flat. The current economic fundamentals are still in a state of repair, the demand component of the manufacturing PMI is mainly driven by external demand, China's export data denominated in US dollars released this week grew by 1.5% year-on-year, slightly higher than market expectations, but domestic demand still needs to be boosted, the manufacturing PMI is located near the withering line, and the bill interest rate has no significant upward basis.
2.2 Basic Financial Aspects
Based on the above analysis, bills are a tool for bank credit adjustment, and specifically, the scale of bill financing is generally inversely hedged against the total scale of short-term, medium- and long-term loans to residents and short-term, medium- and long-term loans to enterprises. At the same time, banks' credit allocation has obvious seasonal characteristics, which is manifested in January, March, June and September (i.e., the beginning of the year and the end of the quarter) as the big credit months, and the credit scale in the rest of the months is low. Corresponding to the bill rate, the first quarter tends to be the highest point of the year, with a seasonal rise in June and September, and a seasonal decline in April-May, July-August, and Q4. The seasonal variation of the bill interest rate and the OMO interest rate spread is also consistent with the above pattern.
From the perspective of specific credit situation, residents' short-term loans mainly include consumer loans, business loans, etc., which are related to PMI, social zero and disposable income, which is manifested in the positive correlation between the scale of residents' short-term loans and the trend of PMI, and the growth rate of residents' short-term loans is positively correlated with the growth rate of social zero and disposable income. Residents' medium and long-term loans are mainly housing loans, and their growth rate is consistent with the sales growth rate of new and second-hand houses. In the context of weak real estate investment, infrastructure investment is the main factor supporting the medium and long-term loans of enterprises. At the same time, the placement and repayment of PSL are also factors that need to be considered to affect the scale of credit, and the possible beneficiaries of PSL investment are real estate investment, infrastructure investment and medium and long-term loans of enterprises, while PSL repayment may indicate that the intensity of related credit demand is not high.
Judging from the credit situation in May of previous years, May is a traditional credit month, and the credit scale is seasonally higher than that in April, but it is still at a low level for the whole year. According to the data from 2019 to 2023, the average value of credit scale (excluding bill financing and non-bank loans) in May was 1,176.7 billion yuan, an increase of 571.6 billion yuan from the average value in April, of which short-term loans to residents and medium and long-term loans increased by 186.7 billion yuan and 89.9 billion yuan respectively, and short-term loans and medium- and long-term loans to enterprises decreased by 228.8 billion yuan and 66.2 billion yuan respectively. The average scale of bill financing in May was 236.1 billion yuan, a decrease of 62.4 billion yuan from the average value in April. Reflected in the bill interest rate, from 2019 to 2023, the average interest rate of 6M bills in May is 2.08%, down 36bp from April.
Judging from the current credit situation, in terms of resident credit, the transaction area of commercial housing in 30 large and medium-sized cities in April and the transaction area of second-hand housing in 11 cities [1] recorded -38% and -9% year-on-year respectively, and from the absolute level of the past five years, the transaction area of second-hand housing in 11 cities is higher than the seasonal level, but from the perspective of second-hand housing prices in 70 large and medium-sized cities, second-hand housing prices still maintain a downward trend, and the second-hand housing market is "price for volume"; The transaction area of commercial housing in 30 large and medium-sized cities is still at the lowest level in season. Recently, the real estate policy has been further relaxed, and Chengdu, Tianjin, Beijing, Shanghai, Shenzhen and other cities have optimized the housing purchase restriction policy, and the effect of the policy still needs to be further observed. In terms of corporate credit, the project screening of special bonds has been completed, and the issuance is expected to accelerate in May. According to the data since 2018, the monthly issuance scale of special bonds exceeded 655.1 billion yuan, which is at the level of more than the 90th percentile since 2018, including September 2018, January, May and August 2020, May and June 2022, and August and September 2023.
At the same time, the central bank pointed out that "in April, the China Development Bank, the Export-Import Bank of China, and the Agricultural Development Bank of China repaid a net of 343.2 billion yuan of mortgage supplementary loans", which is the largest since 2015, and the downward range of the monthly pivot of bill interest rates in April 2024 is significantly higher than the seasonal level. Further analysis shows that the top five months of PSL net return since 2015 are November 2020, July 2021, August 2021, May 2022, June 2023, and in the above months, the monthly pivot changes in bill interest rates are -16bp, -11bp, -37bp, -58bp, and 15bp respectively (the seasonal levels from 2019 to 2023 in the same period are -17bp, -16bp, -22bp, - 36bp, 23bp), the probability of the bill interest rate falling more than the seasonal level or the upward trend is not as high as the seasonal level, and the net repayment of PSL may lead to a decline in supporting financing demand, which is bullish for bills.
2.3 Supply and Demand of Bills
When the demand for corporate invoicing is strong, the supply of bills rises, and the scale of new undiscounted bank acceptance bills has a tendency to rise, and when the maturity scale of bills is larger or when the commercial bank uses the impulse demand for bills is larger, the scale of new undiscounted bank acceptance bills has a downward trend.