The trading volume of bond connect reached a new high in October: high selling and low absorbing of overseas capital

category:Finance
 The trading volume of bond connect reached a new high in October: high selling and low absorbing of overseas capital


He said frankly that at present, the smell of RMB bond trading of overseas capital is quite sharp. When domestic financial institutions are still debating whether the central bank will follow the Federal Reserve to cut interest rates in the third quarter of this year, overseas capital also early bet that the tense trade situation at that time will make the central bank not follow the Federal Reserve to cut interest rates to improve the attractiveness of RMB bonds and capital inflow, so the yield of 10-year Treasury bonds The rate is between 3.2% and 3.3%, and the yield falls to around 3.05% (corresponding to the rise of bond price) from August to September to sell, obtaining a return of about 25 basis points.

At present, bond trading is becoming more and more active, which does not affect the general trend of overseas capital to continue to buy RMB bonds.

Bryan Collins, head of fixed income in Asia at Fidelity International, said that with the increasing weight of Chinas bonds in the global bond index, the current overseas capital positions in RMB bonds are just beginning. The first reason is that the nominal yield and actual yield of Chinas bonds are highly attractive in the global market. Although CPI has increased recently, the PPI is still low, so the actual yield is still low The interest rate is still considerable; second, the volatility correlation between Chinas national debt and the global bond market is still low, which is regarded as a safe haven by many overseas capital; third, the current interest margin between China and the United States (the difference between the 10-year U.S. bond yield) has reached about 160 basis points, which is becoming one of the important sources for many overseas capital fixed income portfolios to achieve their income goals.

Our research found that in recent years, there have been new changes in the trading strategies of overseas capital to RMB bonds, such as some overseas institutions no longer focus on national bonds, policy bank bonds and inter-bank deposit receipts, and start to look for higher price difference income investment opportunities in the fields of urban investment bonds and real estate enterprise credit bonds. Aaron Kohli, strategic analyst at BMO capital markets, a hedge fund, said.

Precise bet on no interest rate cut of the peoples Bank of China

Reporters learned from many sides that since overseas capital generally believed that the central bank would not follow the Feds interest rate cut in October, they decided to take advantage of the opportunity of the 10-year bond yield to keep rising, and chose to sell high and suck low to gain additional trading profits.

In particular, on October 21, the LPR price remained unchanged, exceeding market expectations, which ignited the short-term bearish sentiment of overseas capital in bond market. Even some institutions thought that the yield of 10-year Treasury bonds would rise to about 3.4%, and they sold treasury bonds at a high price to win the spread yield. The above-mentioned private fund bond traders pointed out that this led to a trading volume of 30.3 billion yuan of bonds on the same day, the highest trading volume in a single day.

He acknowledged that another reason that cannot be ignored for the active bond trading in October is that some overseas investment institutions adopt profit taking strategies. The reason is that the market generally expects the Federal Reserve to postpone the rate cut after Octobers rate cut. Therefore, these institutions predict that the interest rate gap between China and the United States may no longer be significantly higher, so they decide to lock in the risk-free interest rate gap return of the interest rate gap between China and the United States when selling Treasury bonds at a high price.

After all, the current yield spread of China US 10-year Treasury bonds reaches 160 basis points, and after deducting the operational cost of exchange rate risk hedging (about 30-40 basis points), it can also reach about 120 basis points. If the overseas capital is invested by three times of leverage, its actual risk-free interest margin return will reach 3.6%, which is enough to achieve the set return target of its fixed income portfolio, and then drive them to choose to be safe.

A number of industry insiders estimate that, given that the exchange rate of RMB against the US dollar rose from 7.14 to 7.04 in October, making the operational cost of exchange rate risk hedging fall by 5-10 basis points again, the amount of RMB bonds increased by overseas capital in that month is still close to 100 billion yuan. This means that the proportion of bond trading volume created by buying and holding strategy is about 1 / 3, and trading profit opportunities are increasingly becoming the icing on the cake for overseas capital to gain additional returns.

Quietly layout urban investment bonds and credit bonds

It is worth noting that policy financial bonds, national bonds and inter-bank certificates of deposit are still the most popular RMB bond trading varieties of overseas capital.

Data shows that in the whole October, the volume of transactions of national bonds, policy financial bonds and inter-bank certificates of deposit in bond channels reached 192.8 billion yuan, 95.2 billion yuan and 46.8 billion yuan, accounting for 55.4%, 27.4% and 13.5% respectively.

The reason is that the credit rating of these bond trading varieties is relatively transparent and consistent with the national credit rating, so they are regarded as the first choice for trading by overseas capital. In contrast, due to the differences in credit rating at home and abroad, as well as the low trading liquidity and other factors, the enthusiasm of overseas capital participation is not high Aaron Kohli pointed out that at present, the proportion of trading volume of the above three bond trading varieties is also equivalent to the proportion of positions held by overseas capital - at present, the proportion of positions held by overseas institutions in treasury bonds, policy financial bonds and inter-bank certificates of deposit are 59%, 23% and 11%, respectively.

However, with the stabilization of Chinas economy and the increase of private enterprise credit support, more and more overseas capital is quietly paying attention to the trading investment opportunities of credit bonds and urban investment bonds.

A Wall Street macro-economic hedge fund manager told reporters that they have hired domestic third-party institutions to understand the financial balance of some regions with rapid economic growth, so as to judge whether the local urban investment bonds are undervalued. In addition, these third-party institutions are also helping them to fully grasp the hidden debt and financing improvement of some private enterprises, and find specific credit bonds Trading high sell low profit opportunities. However, at present, the biggest obstacle for them to increase their positions in such bonds is that the financial information of local governments and enterprises is not transparent enough, which makes the Fund Investment Committee reluctant to take risks. In addition, the annual return of overseas credit bonds of domestic real estate enterprises planned in US dollars reaches more than 10%, which also attracts the investment eyes of the Fund Investment Committee.

Bryan Collins said that at present, some overseas investment institutions are willing to win higher interest margin income while maintaining certain credit risk exposure for the investment of urban investment bonds and credit bonds. In order to maximize earnings, more and more overseas capital will not be involved in exchange rate risk hedging operations while increasing their positions in RMB bonds, and will convert 30-40 basis points of Sino US interest rate gap loss into additional earnings. The reason is that the stable growth of Chinas economy has greatly dispelled their concerns about the devaluation of the exchange rate, and they are more willing to adopt radical trading strategies to achieve higher returns. After all, with the rapid growth of the scale of negative interest rate bonds in western countries, more and more overseas capitals are increasing their positions in RMB bonds to achieve the fixed income portfolio. Source: responsible editor of 21st century economic report: Yang Zeyu

Bryan Collins said that at present, some overseas investment institutions are willing to win higher interest margin income while maintaining certain credit risk exposure for the investment of urban investment bonds and credit bonds.