7-Year Treasury Bonds: New Britney###
Interns Jian Kelei and Chen Yuquan also contributed
First, the bump point has become a concave point, and the trend of 7-year treasury bonds is eye-catching
Limited by factors such as primary supply and investor structure, 7-year treasury bonds have always been inactive varieties in the market in the past, so they have a high liquidity premium, and often become a bump in the curve, with 10Y-7Y spreads inverted, and when they are not inverted, the average level of 10Y-7Y spreads is basically maintained at 2-3BP. However, since mid-April this year, the 10Y-7Y spread has quickly reversed from an inverted state and continued to widen to the highest point since 2021. The 7-year Treasury bond has changed from a bump on the curve to a concave point, and the trend is eye-catching.
Source: iFinD
Zheshang Bank
Source: iFinD
Zheshang Bank
Second, the central bank continued to warn of long-term interest rate risks, and the downward trend of 10Y treasury bond yields was blocked
In the first half of 2024, due to multiple factors such as weak economic fundamentals, loose capital, and the seesaw effect of stocks and bonds, the yield of government bonds fell rapidly. Since April, the central bank has issued no less than 11 statements through various channels to suggest that long-term treasury bond yields will generally operate within a reasonable range that matches long-term economic growth expectations, and it is necessary to pay attention to long-term interest rate risks.
On July 1, the central bank issued an announcement saying that "in the near future, it will carry out treasury bond borrowing operations to some primary dealers in open market business", or to prepare for the secondary market to carry out treasury bond trading operations, the central bank can sell long-term treasury bonds in a timely manner to guide the yield of long-term treasury bonds to return to a reasonable range.
Under the influence of the central bank's macro-prudential control of long-term treasury bond interest rate risk, the downward trend of treasury bond yields of 10Y and above is slow.
Source: iFinD
Zheshang Bank
3. The relative value of 7Y treasury bonds has been explored and has become a new sweetheart in the market
In the context of asset shortage, all kinds of interest rate spreads have been compressed across the board
In the first half of this year, the phenomenon of "asset shortage" in the bond market gradually intensified, and it was faced with the dilemma of scarcity of high-quality investment targets, which prompted investors to dig deep into the potential value of various types of bonds and actively look for value depressions, in order to seek relatively high returns in limited resources.
From the perspective of various interest rate differentials, the spreads between CDB bonds, local bonds, urban investment bonds and treasury bonds, as well as the spreads between inactive bonds and new bonds have all narrowed after April this year. Investors' mining of bond targets is very comprehensive, with cross-variety, cross-new and old characteristics. Against this backdrop, the value of 7Y Treasury bonds as a bump on the curve is very attractive to investors, and the spread with 10-year Treasury bonds has been quickly flattened.
Source: iFinD
Zheshang Bank
The only choice for moderate duration, and the trading attributes have been significantly improved
In the current market environment where interest rates are relatively low and volatility is low, many short-duration varieties cannot meet the yield needs of rigid debt portfolios, and these investors have asked for benefits from duration, while 10-year and ultra-long-term treasury bonds face greater interest rate risks and supply shocks, and 7-year bonds will neither produce negative carry because they are too short, nor will they bring greater interest rate risks because they are too long, becoming a "sweet spot" in the curve, and gradually gaining more recognition from market investors.
Judging from the net trading data of the second-tier spot bonds of 7-year treasury bonds, the large banks that have always preferred this period have recently increased their net buying efforts in the secondary market. Funds and other products that did not participate in the secondary trading of 7-year treasury bonds in the past have made significant efforts after April; The secondary trading volume of rural commercial banks has trended upward. Whether it is an allocation institution or a trading institution, the participation in the subject of 7-year treasury bonds has increased significantly. Similarly, since April, the number of transactions and trading volume of the most active bonds of 7-year treasury bonds have increased significantly compared with the first quarter, indicating that the activity of 7-year treasury bonds has increased significantly.
Source: CFETS
Zheshang Bank
Source: Qeubee
Zheshang Bank
Fourth, will Britney become Mrs. Niu?
Today, the central bank announced the OMO interest rate cut, the short-term interest rate space opened again, the term of 10 years and above is limited by the central bank's fear of buying and selling treasury bonds, the downward sentiment is more restrained, the 7-year period is hot to buy again due to the above reasons, the 7-year treasury bond downward range exceeds 4BP, and the 10-year treasury bond spread is opened again, and the level is approaching 20BP. From the perspective of allocation, the cost performance of 7-year treasury bonds has been greatly reduced, but within the limited range of choices, facing the landing of the "buying and selling treasury bonds" operation and the impact of government bond supply, for bulls, 7-year is still a "safe" choice.