The interest rates of MLF (medium-term loan facility) and LPR (loan market interest rate quotation) have not been lowered, which has exceeded expectations. Yesterday, tmlf (targeted medium-term loan facility) did not operate in accordance with the usual practice, which also surprised the market. Since the fourth quarter, the yield of 10-year Treasury bonds has turned up after hitting a low of 3% in August. At present, it has broken the 3.3% mark, and bond traders cant understand it directly. The implied interest rate of shiborirs in the next two to three years has been higher than that of LPR, which shows that the bond market is pessimistic. A foreign-funded banks trading director told the first financial reporter. At present, major institutions also predict that the yield of 10-year Treasury bonds will exceed 3.4-3.5%.
For the fixed power of the central bank, Lu Zhengwei, chief economist of Industrial Bank, analyzed to the first financial reporter that the main reason why tmlf does not operate is the demand, and the banks credit investment to small and micro enterprises may have been relatively concentrated in the first three quarters; while the MLF interest rate has been delayed, it may be related to the management of inflation expectations. In the fourth quarter, there is the possibility of a comprehensive reduction. The central bank will continue to reduce LPR interest rate while maintaining the stability of MLF interest rate, so as to reduce the financing cost of the real economy. But that doesnt mean releasing extra liquidity, mainly because the market lacks long-term liquidity.
Xie Yunliang, chief Macro Analyst of Minsheng securities, told reporters that unlike MLF and reduction of reserve, tmlf is a structural monetary policy tool. Its purpose is to encourage banks to increase the credit supply of private, small and micro enterprises and reduce the financing cost of private, small and micro enterprises through market-oriented way. At present, the macroeconomic situation is complex and grim, we need to do a good job in preventing inflation and deflation, stabilizing growth and risk, stabilizing foreign trade and promoting transformation and other relationships, which cannot be solved by a single policy alone.. We believe that monetary policy, fiscal policy and structural reform should all work together.
Bond traders are suffering
The Fed is not expected to cut rates for the rest of the year. According to Bloomberg, the federal funds rate futures show that the next rate cut will be by the end of 2020. However, the FOMC still has room to cut interest rates. Zhao Yaoting, global market strategist of Jingshun Asia Pacific region, told the first financial reporter.
Despite the wave of overseas interest rate cuts, there has been no new move in China since the fourth quarter, which makes bond traders suffer.
In August, the yield dropped to 3.05% at one time, but it is difficult to go down since then. The short-term interest rate is still fixed, so the yield began to turn up, and the current upside possibility is greater than the downside. Dan Kun, fund manager of Schroder Investment Management (Shanghai), told the first financial reporter.
On October 16, the central bank launched the MLF operation of 200 billion yuan, with the interest rate unchanged at 3.3%; on October 21, the LPR quotation of that month came out - the varieties with one-year period and five-year period and above were respectively 4.20% and 4.85%, unchanged. Previously, the market generally expected that the LPR rate would drop about 10bp, mainly due to the GDP growth in the third quarter falling to 6%, and it is expected that there will still be downward pressure in the fourth quarter.
Chinas national debt yield does not really reflect the real economic interest rate for many years. Previously, because the national debt yield did not go down and the LPR interest rate did not go down, the national debt yield began to turn to LPR. The gap between the two before was too large, and the two may eventually maintain a certain range and stabilize. Lai Changgeng, CEO and President of faba China, told the first financial reporter.
Qu Qing of Huachuang securities also said that in the near future, the bond market lacks new variables, and the leading factors are concentrated in the expectation of increased inflation pressure, local bond issuance ahead of schedule and the expectation of monetary policy fine-tuning caused by the tardy operation of tmlf. Under the continuous fermentation of negative factors, the pessimism of bond market is intensified.
Fourth quarter or early next year?
The key question now is what will be the policy in the fourth quarter?
Lu political commissar told the first financial reporter, recently, MLF interest rate has not been lowered or is related to managing inflation expectations, while tmlf has not been operated has little to do with inflation expectations, mainly because of the demand of banks and enterprises.
In December last year, the central bank created a tmlf to support large-scale commercial banks, joint-stock commercial banks and large city commercial banks with strong real economy and in line with the requirements of macro prudence. The fund of tmlf can be used for three years, and the operating interest rate is 15 BP less than that of MLF. As the conditions for applying for tmlf are in line with the requirements of macro Prudential, sufficient capital, healthy asset quality, and the potential to further increase private enterprise loans of small and micro enterprises after obtaining central bank funds, it is also believed that the initiative of tmlf operation is not the central bank, but the demand of both banks and enterprises. In the first three quarters of this year, the banks loan strength to small and micro enterprises has been increased Larger.
In terms of the fourth quarter, Lu said the central bank, while focusing on the total amount, is also promoting structural adjustment. In recent months, MLF interest rate has not been lowered, but in September, LPR continued to decrease, which is equivalent to reducing credit spread. In the future, if the overall reduction of reserve (bank cost reduction), then LPR is expected to reduce. There is still the possibility of a full-scale reduction during the year, but the reduction does not mean additional easing, mainly because the market lacks long-term liquidity.
However, Lianping also said, the economy in the fourth quarter still needs to adhere to counter cyclical control and moderately increase relevant policies.
Xie Yunliang told reporters that in terms of monetary policy alone, it is still necessary to launch the tmlf operation at the right time. Furthermore, in October, the manufacturing industry continued to decline, the endogenous momentum is still fragile, the finance still needs to continue to support the real economy, and the mission of tmlf to support the development of private, small and micro enterprises has not been completed. To put it another way, before that, tmlf operation on a quarterly basis could be regarded as a model of communication between the central bank and the market. To carry out tmlf operation again in the fourth quarter would help maintain the reputation and credibility of the central bank. From the perspective of implementation window, it is a good choice to select machine operation by referring to the combination of tmlf + MLF in July.
A fund manager of Zheshang fund told the first financial reporter that in the medium term, economic and financial data have stabilized, inflation has risen significantly, which brings pressure to the bond market. The bond market is generally defensive, and the stock market will continue to have band and structural opportunities. It is expected that in the future, the risk pricing of A-share market will further incline to value and profitability, and continue to be optimistic about the stocks and sectors with low valuation and basically good orientation.
Source: First Financial Editor: Guo Chenqi, nbj9931