The risks on the bond market have been released after the plunging since the fourth quarter of last year. The bond market in mid-2017 is highly expected by investors. However, it just saw short recovery in June. The bond market maintained slight fluctuation with differentiated performance in July. It is generally believed that the macro-economic fundamentals are core factors in determining the performance of the bond market as well as the focus differentiated market performance.
Macro fundamentals to dominate market sentiment
The bond market surged in June out of the expectations on recovered liquidity and regulation. Capitals are generally tight in the end of June. But it is different this year with loose capitals in June. As a result of the maturity of capitals and more tax and bonus payment in July, the market is relatively prudent. The capitals price plunged after surging to highs before the disclosure of macro data even the central bank re-initiated the reverse repo.
After the GDP growth reaching the peak in the first quarter, the market has been pessimistic about the expectation on economic fundamentals. However, the economic growth shows its strong toughness. Based on the PMI in June, many detailed indicators are improved, new orders and new export orders in particular.
“The recovery in June is mainly triggered by the expected recovery on the liquidity and regulation. Macro fundamentals have become the core factor in determining the market performance in the future.” Qi Sheng indicated.
Macro economy to recover or bottom
Macro-economic data have been released so far. But the market has different interpretations on them.
The newest manufacturing PMI came at 51.7, 0.5 percent higher than the previous month and beating the expectation, indicated Liu Dan from Galaxy Securities. The index on manufacturing orders was improved and the demand was supported by demands. Although various investments, including investments on fixed assets and properties development, have passed the peak, the declining speed is slow and it is still under the booming range on the whole.
The ferrous metal industrial chains recorded outstanding performance. Futures price surged over 20 percent in the recent month.
However, there are also different voices.
Periodical assets generally present false prices, which is triggered by the price index, China Merchants Securities indicated in a report. The performance and macro growth may be false after deducting the price factor.
Due to the different judgments on the macro economy, the judgment on the bond market is also differenced. It should conduct short selling for bonds if the economy is believed to recover after reaching the bottom and vice versa. It is normal that there are different views in the market.
However, China’s economic growth may be higher first and lower later, but it will not see a double dip, indicated Deng Haiqing, global chief economist at JA Securities. It is believed that the bond market will be slowly bullish amid volatility in the second half of 2017. It will neither be bearish nor bullish.
3.7 pct may be highest yield rate for 10-year treasury bond
It is learnt that the bond market is highly concerned about regulatory factors, but their effects are weakening.
“Based on the inspection results, the balance adjustment of state-owned large and joint stock banks has completed. They have got out of difficulties in liabilities. But it is unknown about the effects on small banks.” Qi believes that the bond market is unlikely to see the tough regulations under various bearish factors in May in the second half. The yield rate of 3.7 percent fir 10-year treasury bond in May is likely to be the highest in 2017.
However, the changes in the international market in the second half may be significantly higher than the first half. As the U.S. Fed will raise the rate and cut the balance and the European Central Bank maintains the view on hiking the rate, the domestic monetary policies may be affected.
The tighter monetary policies and tougher regulation resulted in shrinking credit and pressures on real economies since the beginning of the year, which is the fundamental reason for the flexible adjustment on monetary policies, indicated Bian Quanshui, an analyst from Sinolink Securities. As a result, the biggest uncertainty is the marginal changes of liquidities. The subsequent coordination of regulatory policies will be improved and they will not be tighter than May. The tighter international monetary policies will narrow the interest gap between China and the U.S. and Germany, which will affect the implementation of monetary policies. However, as a result of the currently higher interest gap and the relatively limited effects, the yield rate of 3.7 percent for 10-year treasury is likely to be the highest level in the second half.
Translated by Star Zhang
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