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Original Title: Future Bonds Awaiting Further Negative News Source: Original
Since November, as economic data released in October continues to improve, the central bank has no plans to invest excessive liquidity, which leads to continued tightening of funds. The default of credit bond funding triggered a liquidity shock and the high level of government bond futures declined. Overall, pay attention to the October economic data and liquidity shocks that lead to long opportunities after the national debt adjustment.
The domestic economy continues to improve
Economic data for October showed that the economic sector has continued to improve all round and the rate of growth of consumption has declined, but there is still plenty of room for follow-up. Real estate sales increased and prices fell and post-cycle performance became more evident. In terms of investment, it indicates that the performance of the construction front end is weaker than the back end. Willingness to purchase land has decreased: the growth rate of land purchases is -5.6%, but the growth rate of new construction is 3.5% and the growth rate of completion has rebounded to 5, 9%. Infrastructure construction is being revamped and the active capital expenditure cycle of global production is expected to begin. The growth rate of infrastructure investments in October accelerated, mainly due to the conversion of funds from the issuance of special bonds in the preceding period to investments. However, it should be noted that as economic growth gradually returns to normal, the need for fiscal stimulus has dropped marginally and the deficit rate is expected to return to 3% next year. The scope of special bonds will decrease and the issuance process and supervision will be tighter The growth rate of infrastructure investments next year as a countercyclical adjustment is expected to weaken.
In terms of consumption, corporate profits are passed on to residents’ incomes, consumption continues to move from “home” to “leaving home” and the rate of growth of optional and improved consumption has improved. The improvement in economic demand pushes the restoration of corporate profits, which are gradually transmitted to the income of residents. With the effective prevention and control of the domestic epidemic, the spending power and willingness of the residents have increased.
Overall, the economy continued to recover in October, industrial production remained high, consumption, investment and export troikas improved significantly, and the momentum of endogenous economic fundamentals recovery remained strong. From a structural point of view, with the exception of consumption, the remaining economic sub-items have been roughly brought back to the level of previous years, and subsequent trends in consumption and services will be the key to determining the pace of the economic recovery. The current employment environment continues to improve and subsequent consumption is expected to continue to rise. However, the slowdown in the acquisition of real estate, the decline in the supply of special debt and the colder climate in the northern region should limit the progress of subsequent real estate and infrastructure projects. The recent episode of internal credit insolvency also reminded us to pay attention to the disruption of business production and operations due to the decline in macroeconomic policies.
During the year, the growth rate of CPI and PPI can be negative at the same time and it is difficult to tighten monetary policy. The trend of continually improving pork supply and demand will not change, therefore the decline in pig prices will continue and the future will continue to be the main reason for the continued decline in food CPI. In terms of PPI, it has been below market expectations for three consecutive months. In the context of the continuation of the subsequent economic recovery, the slow upward trend in the prices of industrial products is expected to continue. Under the base effect, the PPI will return to an upward trend year over year. As the improvement in overall demand is still weak, the PPI is likely to remain in the negative range throughout the year. Therefore, from the point of view of economic logic, not only in the fourth quarter, but also in the first half of next year, the inflation risk of a sharp rise in the CPI is temporarily invisible.
Social finance growth is expected to decline rapidly
In October, the rise in social finance exceeded expectations, which once again confirmed the support brought by centralized issuance of government bonds and centralized credit distribution. In addition, non-standard and direct funding items in October also supported the increase in social funding, which although it decreased in October, it still declined by 20.6 billion yuan year-on-year. In terms of direct financing, corporate bond financing and equity financing increased by 49 billion yuan and 74.7 billion yuan year-on-year, respectively, both of which contributed slightly to social finance. In the follow-up, the major social finance support voices began to weaken and even become a drag, so the growth rate of social finance at the end of the fourth quarter is likely to begin to weaken.
As the Ministry of Finance previously required the issuance of local government special bonds to be completed by the end of October, the financing of government bonds in the mid-to-late fourth quarter is coming to an end and support for social finance is likely to end. will weaken. We see that the growth rate of loans after excluding government bonds has slowed significantly. The growth rate of physical financing without government bonds in October was almost the same as last month.
In terms of non-standards, the main reason for the year-on-year decrease in non-standards in October was the small amount of fiduciary loans owed that month, but the end of the year was the peak period for fiduciary loans. As real estate financing policies tighten, the difficulty in issuing subsequent fiduciary products for real estate financing is expected to increase and the decline in net fiduciary lending will further expand. Therefore, there is a high likelihood that the new non-standard additions will become a drag on social funding at the end of the year. Overall, there is a high probability that the social funding growth rate will drop from a high level in the future.
The liquidity shock reappears and the bond market faces an oversold rebound
Since mid-October this year, many bonds have exploded, including the default of two existing Shenyang Shengjing Energy PPNs, the perpetual extension of Qinghai State Investment, the default of Brilliance Private Equity, the non-repayment of “15 Ziguang PPN006 “by the Ziguang Group and the Yong The” 20 Yongmei SCP003 “coal debt is materially in default. As of November 13, relevant data showed that more than 10 credit bonds had undergone significant adjustments. The concentrated default of credit bonds has once again triggered a liquidity shock, which already hit equities, bonds and other markets last week. The reason for this is mainly due to the recent consecutive defaults of the credit obligations of large state-owned enterprises such as Brilliance and Yongmei, which have continually broken the reputation of state-owned enterprises. Many bond funds that stomped the thunder fell sharply, which in turn triggered a large number of institutional redemptions of money market and bond funds. The most recent liquidity risk incident was the BS Bank incident in late May 2019, which had a full impact on funds, credit, equities, bond markets and commodity markets. Finally, the central bank will gradually resolve interbank liquidity problems through window guidance + liberalization of non-bank loans.
On Monday, the central bank released liquidity into the market through an excessive MLF sequel and short-term liquidity shocks are expected to be mitigated. After the release of negative effects such as liquidity shocks, the bond market will be oversold and rebound. (Author’s Unit: Xinhu Futures)
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