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as long-term government bond yields have fluctuated downward since september, the credit bond market has gradually "recovered."

huaxi securities analyst jiang dan released a latest report pointing out that in the first week of september, in the primary market, credit bond subscription sentiment rebounded, among which the proportion of municipal bonds with a subscription multiple of more than 3 times increased from 33% to 55%, and the proportion of subscription multiples between 2 and 3 times increased from 31% to 34%. in the secondary market, market buying sentiment rebounded, among which the tkn (buyer's acceptance of the seller's quotation) transaction proportion of municipal bonds increased from 66% to 76%.

however, the credit bonds that have recovered first since september are mainly short-term ones. their spreads have narrowed and trading activity has increased; in comparison, the primary market subscription sentiment for medium- and long-term credit bonds with a maturity of more than 5 years is not high, and the issuance interest rates of weak-qualified entities are high. secondary trading is also relatively sluggish, and the proportion of tkn is lower than that of other maturities.

a private equity bond trader analyzed to reporters that the market's liquidity in early september declined compared with the previous period, resulting in a corresponding decrease in the amount of funds that extend the duration to seek high returns, affecting the enthusiasm for allocating medium- and long-term credit bonds; in addition, many investment institutions are still worried that if the central bank continues to enter the market to sell long-term treasury bonds, the rising yields of long-term treasury bonds will drag down the prices of long-term credit bonds, bringing greater investment risks.

in his opinion, there are two factors that cannot be ignored for the reason why short-term credit bonds are the first to recover in the current process of credit bond stabilization and repair. first, with high expectations for reserve requirement ratio cuts, many investment institutions believe that short-term bond prices have stronger momentum for rising prices and there is a higher room for policy arbitrage operations. second, investment institutions are working hard to reduce maturity mismatch and leveraged investment risks, making short-term credit bonds more valuable for allocation.

"at present, the investment logic of underlying bond assets of investment institutions is changing. previously, they focused more on extending duration and increasing leverage to gain relatively high returns; now they are working hard to reduce maturity mismatch and leverage risks to ensure that the net value of products maintains lower volatility during future bond market fluctuations." the private equity fund bond trader analyzed.

the issuance scale of major credit bond varieties in august fell by more than 2% month-on-month

on august 9, the central bank released a column article entitled "china's monetary policy implementation report for the second quarter of 2024", pointing out that the annualized yields of some asset management products, especially bond-type wealth management products, are significantly higher than those of the underlying assets, which is mainly achieved through leverage and actually involves a large interest rate risk.

since august, credit bonds have experienced a wave of adjustments. the reasons are: first, the yield of government bonds continued to rise in early august, dragging down the price of credit bonds; second, due to the decline in the net value of wealth management products caused by the rise in government bond yields (falling bond prices), some wealth management products turned to selling credit bonds to raise funds in response to potential fund redemption pressure when the trading activity of government bonds declined; third, in order to prevent the central level of long-term government bond yields from continuing to rise, some wealth management products sold profitable long-term credit bonds in advance to lock in profits and complete the diversification of underlying bond assets.

the fixed income team of huatai securities released a report stating that the credit bond adjustment in august began on august 5, and experienced two large-scale correction fluctuations from august 7 to august 12 and from august 20 to august 27 respectively.

since the beginning of august, the central bank has guided large banks to sell long-term government bonds, warned of the risk of overheated bond market trading, and conducted stress tests and interest rate adjustments on the interest rate bond market, which has led to a cooling of bond market trading activity and a correction in interest rate bonds, thus triggering a linkage reaction in the credit bond market. from august 7 to august 12, credit bonds followed the overall widening of government bonds by 10+bp.

after august 12, the interest rate bond market fluctuated downward, while the trend of credit bonds diverged from that of interest rate bonds, showing an active broadening trend. in late august, the overall credit bond yield continued to rise (credit bond prices fell), reaching a peak on august 27, with an overall increase of about 20 basis points compared to august 5.

the reporter of daily economic news noted that from august 26 to august 30, the overall credit bond was still in a correction state, with the yield of high-credit-rated municipal investment bonds rising by 3 to 8 basis points, and the yield of some low-rated municipal investment bonds rising by more than 10 basis points. in the primary market, wind data showed that from august 20 to august 29, the average interest rate of credit bond issuance (weighted by the issuance amount) rose by 37 basis points, among which the average issuance rates of aaa, aa+ and aa credit bonds rose by 25 basis points, 42 basis points and 56 basis points respectively.

this directly led to many enterprises and urban investment companies canceling their credit bond issuances. according to the securities times, since august 20, the number of credit bonds canceled or postponed has reached 51, with a cumulative fund size of about 40 billion yuan. however, in early and mid-august, only two and five credit bonds were canceled or postponed.

"this is indeed the second peak of credit bond cancellation or postponement this year," said the private equity bond trader. the first peak occurred in mid-to-late march, when the bond bull market continued to ferment, and many companies and urban investment institutions canceled or postponed their planned credit bond issuance plans (the scale was also about 40 billion yuan) in order to wait for lower issuance rates; the situation in august was different, and many companies and urban investment companies were unwilling to issue credit bonds during a period of relatively high issuance rates, which added higher interest repayment financial pressure to themselves.

wind data shows that the issuance scale of major credit bond varieties in august was 1.254508 trillion yuan, down 2.43% from july, and the scale of credit bonds canceled reached 44.536 billion yuan, a sharp increase from 8.50 billion yuan in july. the peak period of credit bond cancellations that month occurred after the long-term treasury bond yield hit its monthly high on august 13.

reporters learned that the corporate credit ratings of the companies that canceled or postponed the issuance of credit bonds in late august were mainly aaa and aa+, and the issuers were mainly central enterprises and local state-owned enterprises because they are more "sensitive" to the issuance interest rates.

in the view of the private equity fund bond trader, if the credit bond market is to say goodbye to the surge in "cancellations or postponements of issuance" in the short term, two conditions need to be met. first, the long-term treasury bond yields will fall again, causing the credit bond issuance rate to be lowered accordingly. second, the market's liquidity is relatively loose, bringing higher subscription multiples to credit bond issuance.

"since september, the decline in long-term treasury bond yields has led to a stabilization and recovery in credit bond prices, causing the issuance rate of credit bonds in the primary market to fall. this may prompt companies and urban investment companies to no longer cancel or postpone the issuance of credit bonds. however, the current loose liquidity situation is not as good as in the first half of the year. in addition, many investment institutions are concerned about the historical low credit spreads of medium- and long-term credit bonds (higher issuance prices), which has led to some new characteristics in the recovery of the credit bond market since september." he analyzed.

only 4 credit bonds were cancelled in late august and early september

the above-mentioned private equity fund bond trader believes that the issuance rate of credit bonds has dropped significantly compared to the end of august, which has significantly reduced the number of companies canceling and postponing the issuance of credit bonds; in addition, compared with medium- and long-term credit bonds, the investment activity of short-term credit bonds in the primary and secondary markets has been significantly higher since september.

yu lifeng, senior analyst at orient securities' research and development department, said that as of september 4, the average issuance rate of credit bonds had fallen by 69bps from august 29 and was lower than the level at the beginning of august. as a result, the number of companies canceling or postponing the issuance of credit bonds has dropped significantly. from august 30 to september 4, only four credit bonds were canceled.

a reporter from the "daily economic news" noticed that short-term credit bonds are more "active" than medium- and long-term credit bonds.

a report released by huaxi securities analyst jiang dan pointed out that in the first week of september, in the primary market, the proportion of credit bonds with a term of more than 5 years decreased, and the issuance rate increased significantly. among them, the proportion of industrial bonds with a term of more than 5 years decreased from 12% in august to 4%, and the weighted average issuance rate increased by 29 basis points from august to 2.76%; the proportion of municipal bonds with a term of more than 5 years decreased from 10% to 8%, and the issuance rate also increased by 17 basis points from august to 2.77%.

in the secondary market, the transaction volume of credit bonds with a maturity of more than 5 years was relatively sluggish. for example, the transaction volume of credit bonds with a maturity of more than 5 years remained at 4%, but tkn accounted for only 71%, lower than the level of 75% to 78% for other maturities. for example, the transaction volume of industrial bonds with a maturity of more than 5 years dropped from 11% to 9%.

the above-mentioned private equity fund bond analyst believes that the reason for this situation is that, first, as the central bank continues to enter the market to buy short and sell long, and frequently warns of the risks of long-term treasury bond investments, many investment institutions have high investment risk concerns about long-term credit bonds; second, compared with medium- and long-term credit bonds, current short-term credit bonds have a higher configuration cost-effectiveness.

the reporter learned that based on the market conditions on september 6, the credit spread of 1-year and 3-year municipal bonds was still 4 to 8 basis points higher than at the end of april, which has a certain configuration cost-effectiveness. in comparison, the credit spread of municipal bonds with medium and high credit ratings of more than 5 years was 6 to 14 basis points lower than at the end of april, which means that once the credit bond market fluctuates in the future, the price adjustment of medium- and long-term credit bonds may be higher than that of short-term municipal bonds.

"based on past experience of fund flows, a large amount of funds from wealth management products will be returned to the balance sheet in september (to meet the bank's loan-to-deposit ratio assessment at the end of the third quarter), causing the scale of wealth management products to decline at the end of the quarter, and the support for the credit bond market to decline accordingly." he pointed out. in this case, short-term credit bonds with a more cost-effective configuration are often easily a major underlying asset allocation choice for various financial institutions to cope with the asset shortage in the bond market.

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