The central bank promotes the improvement of the market-oriented interest rate regulation mechanism, and the interest rate transmission relationship focuses on "from short to long" | China Financial Conditions Index Weekly Report of China Business News Research Institute
2024-08-24
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During the week of August 12-16,The average daily index of China's financial conditions of the First Financial Research Institute was -2.42, up 0.22 from the previous week and down 1.13 this year.Judging from the index's component indicators, the marginal tightening of liquidity last week was the main factor driving the index upward. From the perspective of monetary indicators, R007 and DR007 were both above the policy interest rate last week, and the pledged repo transaction volume declined. From the perspective of bond indicators, the yields of interest-bearing bonds and credit bonds rose simultaneously last week. From the perspective of stock market indicators, the A-share market's price-earnings ratio is at a historical low.
During the week of August 12-16,The liquidity in the interbank market has tightened significantly compared with the previous week.This is mainly reflected in the decline in the volume of pledged repurchase transactions in the interbank market and the rise in interest rates in major money markets. Among the 7-day repurchase rates, the average interest rates of R007 and DR007 last week were 1.91% and 1.86%, respectively, up 6.76bp and 10.42bp from the previous week. But overall, the market funds are still abundant, the liquidity difference between banks and non-banks is very small, and the difference between R007 and DR007 remains within 10bp. The central bank further improved the market-oriented interest rate regulation mechanism. On August 15, after the 401 billion yuan 1-year MLF expired, the central bank issued an announcement that it would renew the MLF on August 26. The central bank chose to postpone the time point to after the 20th, intending to dilute the relationship between the MLF interest rate and the LPR interest rate. The central bank elaborated on the new interest rate regulation mechanism in Column 2 of the second quarter monetary policy implementation report: in the future, the policy interest rate attributes of the 7-day repurchase rate will be strengthened, and the medium-term policy interest rate represented by the MLF interest rate will gradually fade out. Improve the LPR quoted interest rate and straighten out the interest rate transmission relationship from short to long term.
During the week of August 12-16,Both bond market issuance and net financing increased compared with the previous week.Among them, the total issuance of the bond market was 1.53 trillion yuan, up 376.085 billion yuan from the previous week; the net financing of the bond market was 247.862 billion yuan, up 145.762 billion yuan from the previous week. From the perspective of financing structure, the net financing of government bonds increased significantly last week, offsetting the impact of net repayment of bonds by the financial sector and non-financial corporate sector. The issuance of treasury bonds and local government bonds accelerated last week, with treasury bonds net financing of 386.09 billion yuan and local government special bonds net financing of 93.611 billion yuan. The non-financial corporate sector net repayment was 17.217 billion yuan, which was the first time that the corporate sector turned from net financing to net repayment in a single week since mid-June. From the perspective of the secondary market, the recent regulatory effect of the central bank on the unilateral downward trend of treasury bond yields has already emerged. Last week, the yields of treasury bonds of all maturities rose, with the increases of 2-year, 5-year, 10-year and 30-year treasury bonds by 12.25bp, 7.64bp, 5.36bp and 4.4bp respectively. Last week, credit bond yields followed the upward trend of treasury bond yields. Among AA-rated bonds, the yields of 5-year corporate bonds, corporate bonds and asset-backed securities rose by 8.18bp, 7.05bp and 6.47bp respectively.
During the week of August 12-16,The total amount of A-share financing was 5.136 billion yuan, up 3.636 billion yuan from the previous week.In terms of the year, the total financing of A-shares this year was 206.171 billion yuan, which was weaker than the same period in previous years. From the perspective of the secondary market, the main A-share indices rose and fell, among which the Shanghai Composite Index rose by 0.6%, the SME Index fell by 0.9%, and the ChiNext Index fell by 0.2%. The average daily trading volume of A-shares was 527.4 billion yuan, and the price-earnings ratio was 13.5, both of which were at historical lows.
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I. Overview of China’s Financial Conditions Index
During the week of August 12-16,The average daily index of China's financial conditions of the First Financial Research Institute was -2.42, up 0.22 from the previous week and down 1.13 this year.
From the perspective of the index's component indicators,The marginal tightening of liquidity last week was the main factor driving the index upward.From the perspective of monetary indicators, R007 and DR007 were both above the policy interest rate last week, and the pledged repo transaction volume declined. From the perspective of bond indicators, the yields of interest-bearing bonds and credit bonds rose simultaneously last week. From the perspective of stock market indicators, the A-share market price-earnings ratio is at a historical low.
2. Money Market
During the week of August 12-16,The liquidity in the interbank market has tightened significantly compared with the previous week.This is mainly reflected in the decline in the volume of pledged repo transactions in the interbank market and the rise in interest rates in major money markets. Among the 7-day repo rates, the average rates of R007 and DR007 were 1.91% and 1.86% last week, up 6.76bp and 10.42bp from the previous week, respectively. However, overall, the market funds are still abundant, and the liquidity difference between banks and non-banks is small. The difference between R007 and DR007 remains within 10bp.
The central bank further improved the market-oriented interest rate regulation mechanism.On August 15, after the 1-year MLF of 401 billion yuan expired, the central bank announced that it would renew the MLF on August 26. The central bank chose to postpone the time point to after the 20th, intending to dilute the relationship between the MLF interest rate and the LPR interest rate. In the second quarter monetary policy implementation report, the central bank elaborated on the new interest rate regulation mechanism: in the future, the policy interest rate attribute of the 7-day repurchase rate will be strengthened, and the medium-term policy interest rate represented by the MLF interest rate will gradually fade out. Improve the LPR quotation interest rate and straighten out the interest rate transmission relationship from short to long.
1. Money market volume and interest rates
In the week of August 12 to 16, the liquidity of the interbank market was significantly tighter than that of the previous week. In terms of trading volume, the average trading volume of interbank pledged repo last week was 6.21 trillion yuan, down 1.06 trillion yuan from the previous week.
From the perspective of fund prices, the average interest rates of major money markets rose last week compared with the previous week. Among overnight repo rates, the average interest rates of R001 and DR001 were 1.87% and 1.81% last week, up 3.3bp and 4.16bp respectively from the previous week. Among 7-day repo rates, the average interest rates of R007 and DR007 were 1.91% and 1.86% last week, up 6.76bp and 10.42bp respectively from the previous week.
Although the interest rates of major money markets have risen, the overall liquidity of the market is still relatively abundant, which is reflected in the small liquidity difference between banks and non-banks. Last week, the average difference between R007 and DR007 was 5.14bp, down 4.63bp from the previous week.
2. Central bank open market operations
In the week of August 12 to 16, there are two points worth noting in the central bank's open market operations: First, the central bank significantly increased the scale of 7-day reverse repurchase operations, and the total amount of reverse repurchase during the week reached 1.55 trillion yuan. On August 13, 14 and 15, the central bank's daily reverse repurchase scale was 385.7 billion yuan, 369.2 billion yuan and 577.7 billion yuan respectively. Second, on August 15, 401 billion yuan of 1-year MLF matured. On the same day, the central bank announced that the MLF that matured this time would be extended to August 26.
This month's open market operations reflect that the central bank is further improving the market-oriented interest rate regulation mechanism, that is, weakening the policy attributes of MLF, while further strengthening the policy attributes of short-term reverse repurchase rates. In Column 2 of the central bank's second quarter monetary policy implementation report, the central bank elaborated on deepening interest rate marketization reforms: adjusting the open market operation bidding method, strengthening the main policy interest rate attributes of the open market 7-day repurchase operation interest rate; increasing temporary positive and reverse repurchase operations in the afternoon, guiding market interest rates to better operate smoothly around the policy interest rate center; improving the loan market quotation rate (LPR), and straightening out the interest rate transmission relationship from short to long.
Overall, the central bank postponed the renewal of the MLF to after the LPR quotation on the 20th, further weakening the policy attributes of the MLF interest rate. The medium-term policy interest rate is gradually fading out, while the policy attributes of the short-term 7-day repurchase rate will further increase.
3. Bond Market
During the week of August 12-16,Both bond market issuance and net financing increased compared with the previous week.Among them, the total issuance of the bond market was 1.53 trillion yuan, up 376.085 billion yuan from the previous week; the net financing of the bond market was 247.862 billion yuan, up 145.762 billion yuan from the previous week. From the perspective of financing structure, the net financing of government bonds increased significantly last week, offsetting the impact of net repayments of bonds by the financial sector and non-financial corporate sector. The issuance of treasury bonds and local government bonds accelerated last week, with treasury bonds net financing of 386.09 billion yuan and local government special bonds net financing of 93.611 billion yuan. The non-financial corporate sector made a net repayment of 17.217 billion yuan, which was the first time since mid-June that the corporate sector has turned from net financing to net repayment in a single week.
From the perspective of the secondary market, the recent central bank's regulation of the unilateral downward trend in treasury bond yields has already shown results. Last week, treasury bond yields of all maturities rose, with the increases of 2-year, 5-year, 10-year and 30-year treasury bond yields by 12.25bp, 7.64bp, 5.36bp and 4.4bp respectively. Last week, credit bond yields rose in tandem with treasury bond yields. Among AA-rated bonds, the yields of 5-year corporate bonds, corporate bonds and asset-backed securities rose by 8.18bp, 7.05bp and 6.47bp respectively.
1. Bond market issuance
In the week from August 12 to 16, the bond market issuance and net financing amount both increased compared with the previous week. Among them, the total issuance amount of the bond market was 1.53 trillion yuan, an increase of 376.085 billion yuan from the previous week; the net financing amount of the bond market was 247.862 billion yuan, an increase of 145.762 billion yuan from the previous week.
From the perspective of financing structure, the net financing of government bonds increased significantly last week, offsetting the impact of the net repayment of bonds in the financial sector and non-financial corporate sector. From the perspective of the government sector, the net financing of treasury bonds last week was 386.09 billion yuan, the net financing of local government special bonds was 93.611 billion yuan, and the net financing of the entire government sector was 486.038 billion yuan. From the perspective of the financial sector, the net repayment of interbank certificates of deposit last week was 209.09 billion yuan, the net repayment of policy bank bonds was 97.03 billion yuan, the net financing of commercial bank bonds and commercial bank subordinated bonds was 44 billion yuan and 32 billion yuan respectively, and the net repayment of the entire financial sector was 220.96 billion yuan. From the perspective of the non-financial corporate sector, the net repayment of corporate bonds, corporate bonds and short-term financing was 6.899 billion yuan, 2.212 billion yuan and 41.064 billion yuan respectively last week, the net financing of medium-term notes and asset-backed securities was 14.524 billion yuan and 19.424 billion yuan respectively, and the net repayment of the entire non-financial corporate sector was 17.217 billion yuan. This is the first time that the corporate sector has turned from net financing to net repayment in a single week since mid-June.
Looking at the year, as of August 16, the government's cumulative net bond financing this year reached 4.17 trillion yuan, accounting for 43.76% of the overall net financing of the bond market; the financial sector's cumulative net bond financing this year reached 4.08 trillion yuan, accounting for 42.79%; the non-financial corporate sector's cumulative net bond financing was 1.28 trillion yuan, accounting for 13.45%.
Compared with the same period last year, the overall net financing scale of the bond market has expanded significantly this year. As of August 16, the year-on-year growth rate of government bond balance was 16.1%, 4.7 percentage points higher than the same period in 2023; the year-on-year growth rate of financial sector bond balance was 12.3%, 3.9 percentage points higher than the same period in 2023; the year-on-year growth rate of non-financial corporate bond balance was 5%, 7 percentage points higher than the same period in 2023.
2. Bond yield trends
1) Interest-bearing bonds
In the week of August 12 to 16, the yields of treasury bonds of various maturities rose significantly, and the effect of the central bank's regulation on the rapid decline in treasury bond yields has become apparent. From the short end, the yields of 1-month, 3-month, 6-month and 1-year treasury bonds rose by 8.62bp, 9.04bp, 5.57bp and 10bp respectively last week. From the medium and long end, the yields of 2-year, 5-year, 10-year and 30-year treasury bonds rose by 12.25bp, 7.64bp, 5.36bp and 4.4bp respectively last week.
From the perspective of Treasury bond spreads, the Treasury bond term spread dropped significantly from the week of August 12 to 16 compared with the previous week. As of August 16, the yield difference between 10-year Treasury bonds and 1-year Treasury bonds was 66.37bp, down 7.87bp from the previous week. From a year-to-date perspective, the Treasury bond term spread is still fluctuating upward. As of August 16, the spread between 10-year and 1-year Treasury bonds has increased by 18.8bp compared with the beginning of the year.
2) Credit bonds
In the week of August 12 to 16, the yields of various credit bonds rebounded. Among AAA-rated bonds, the yields of 5-year corporate bonds, corporate bonds and asset-backed securities rose by 7.39bp, 7.06bp and 8.16bp respectively. Among AA-rated bonds, the yields of 5-year corporate bonds, corporate bonds and asset-backed securities rose by 8.18bp, 7.05bp and 6.47bp respectively.
Last week, the spreads between credit bonds and government bonds rose and fell, and the spreads between most AA-rated credit bonds and government bonds narrowed. Among AAA-rated bonds, the spreads between corporate bonds, corporate bonds and government bonds fell by 0.26bp and 0.59bp last week, and the spread between asset-backed securities and government bonds rose by 0.52bp. Among AA-rated bonds, the spread between corporate bonds and government bonds rose by 0.54bp last week, and the spreads between corporate bonds, asset-backed securities and government bonds fell by 0.59bp and 1.17bp.
4. Stock Market
During the week of August 12-16,The total amount of A-share financing was 5.136 billion yuan, up 3.636 billion yuan from the previous week.Looking at the year so far, A-shares have raised a total of 206.171 billion yuan this year, which is weaker than the same period last year.
From the perspective of the secondary market, the major A-share indices rose and fell, with the Shanghai Composite Index up 0.6%, the SME Board Index down 0.9%, and the ChiNext Index down 0.2%. The average daily trading volume of A-shares was 527.4 billion yuan, and the price-earnings ratio was 13.5, both at historical lows.
1. Primary Market
In the week from August 12 to 16, the total amount of A-share financing was 5.136 billion yuan, an increase of 3.636 billion yuan from the previous week. From the four-week rolling average of A-share financing, A-share financing has been at a low level since the fourth quarter of last year. From a year-to-date perspective, the cumulative financing of A-shares this year is 206.171 billion yuan, which is weaker than the same period in previous years.
2. Secondary Market
In the week from August 12 to 16, the major A-share indices rose and fell, with the Shanghai Composite Index up 0.6%, the SME Index down 0.9%, and the ChiNext Index down 0.2%. In terms of the year, the Shanghai Composite Index has fallen by 3.2%, the SME Index has fallen by 11.1%, and the ChiNext Index has fallen by 15.9%. The market risk appetite measured by the year-on-year growth rate of the stock index minus the 10-year treasury bond yield has also shown a downward trend.
In terms of trading volume, the average daily trading volume of A-shares last week was 527.4 billion yuan, down 18.2% from the previous week. In terms of price-earnings ratio, the weighted average price-earnings ratio of A-shares last week was 13.42, down 0.6% from the previous week. Both the trading volume and price-earnings ratio of A-shares are at historical lows. Recently, the difference between A-share financing and securities lending has dropped to 1.39 trillion yuan, accounting for 1.96% of the total market value of A-shares.
(Source of the title image of this article: China Business Network)
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Author: Liu Xin, Researcher, First Financial Research Institute
(This article comes from China Business Network)
