Summary of Key Points
Since August, the yields on long-term domestic bonds (10-year and 30-year) have continuously declined to historical lows, but there has been a slight rebound recently. Market concerns about regulatory measures, tightening of liquidity, and increased supply of government bonds have risen, yet the bullish trend has not yet reversed. The "seesaw" effect between stocks and bonds is evident (when the stock market falls, the bond market rises). The logic behind domestic and overseas bond markets is diverging; the domestic market is driven by internal factors such as weak domestic demand and loose funds, while overseas influences are limited. Institutions generally believe that support will remain in the short term, but it is not recommended to buy more 10-year bonds with yields below 1.7%. Investors should consider adding to their positions during adjustments.
Domestic Bond Market: Long-Term Bond Yields at Historical Lows, with Recent Rebound
Since August, the yield on 10-year bonds has dropped from above 1.7% to around 1.68% (with a low of 1.6645% during trading on the 18th), and the 30-year bond yield even more significantly, reaching a historical low of 2.1455%. However, on the 25th, there was a sudden reversal: bond futures fell across the board, and the yields on spot bonds mostly increased (by 0.2 basis points for both 10-year and 30-year bonds).
Why the rebound? Mainly because the market is worried about excessive speculation: trading institutions, such as funds, have been buying long-term bonds in large quantities, pushing the "duration" of the bonds (which can be understood as the average maturity time, and the longer the duration, the more sensitive the bond is to interest rate changes, thus the higher the risk) to record levels, leading to concerns that regulators may intervene to cool down the market. Additionally, liquidity has become slightly tighter (the interbank overnight lending rate DR001 rose to 1.44%), and the central bank's actions (net withdrawal of 100 billion yuan from medium-term MLF operations and increased short-term reverse repurchase operations) have caused some panic in the market.
Three Major Concerns of the Market: Regulation, Liquidity, and Supply
1. Regulatory Risk: Institutions like funds have been buying long-term bonds too aggressively, increasing the duration significantly. Regulators may fear a bubble bursting, similar to what happened in 2024, when they intervened by issuing warnings, restricting bond borrowing, and regulating bond transactions, causing yields to rise by 8-13 basis points each time. However, institutions argue that even if there are adjustments, the overall trend will not change, and these adjustments could provide an opportunity to buy at lower prices.
2. Tight Liquidity: On the 25th, DR001 rose, and although the central bank increased short-term reverse repurchase operations, it reduced medium-term MLF operations, signaling that it will provide enough funds in the short term but less in the medium term, making liquidity less loose than before.
3. Increased Supply of Government Bonds: The government still needs to issue 5.4 trillion yuan in bonds by the end of the year, at an average of 1.34 trillion yuan per month, with significant pressure in September and October. However, historical experience shows that the relationship between supply and interest rates is not strong because expectations are already high, and the central bank will likely cooperate with monetary easing, so there is no need to be overly concerned.
Stock-Bond Seesaw Effect: Bond Market as a Safe Haven When Stocks Fall
On the 24th, the A-share market plummeted (due to a correction in the AI sector), but the bond market soared: yields on 10-year and 30-year bonds decreased by 0.7 and 1.1 basis points, respectively. This is the "seesaw" effect at work—when the stock market is risky, funds flow into safer assets (long-term bonds and dividend stocks). The yield spread between 30-year and 10-year bonds provides sufficient safety for investors to buy long-term bonds.
Clear Divide Between Domestic and Overseas Bond Markets
Overseas bond market interest rates (especially those of the U.S.) are very high, while domestic rates are low. Why?
- Overseas Factors: AI financing has taken away funds that would otherwise be used to buy bonds, governments are borrowing too much, central banks and institutions are buying less, and inflation risks remain, leading to higher U.S. bond rates.
- Domestic Factors: Weak domestic demand, loose funds (due to central bank easing), and a "lack of good assets to invest in" have caused the domestic bond market to rise. Additionally, there are capital controls in China, and the proportion of foreign capital holding domestic bonds is low, so overseas interest rates have limited impact on the domestic market—at most, they may slow down the pace of interest rate cuts but will not reverse the downward trend of the domestic bond market.
What Do Institutions Think?
The bullish trend has not been broken, but investors should not chase high prices.
1. Xingye Securities: The bullish narrative (such as the decline in the tech sector and expectations of loose monetary policy) remains. Short-term disruptions (tightening of liquidity and increased supply) will not change the overall trend. 30-year bonds are more suitable for investment; positions can be added when yields adjust to around 2.2%.
2. Guosheng Securities: The yield on 10-year bonds may fall to around 1.6%, and that on 30-year bonds to around 2.0%. There is no need to worry about supply pressures.
3. Huatai Securities: Do not buy more 10-year bonds with yields below 1.7%; focus on holding them. As long as the economy does not turn around, liquidity does not become severely tight, and there are no negative policy developments, profit-taking by traders will not trigger a panic sell-off.
In summary, the domestic bond market is still performing well, but investors should not be overly greedy. It is safer to buy during market adjustments, as overseas developments have limited impact.
(Note: 1 basis point = 0.01%; for example, a 0.2 basis point increase in yield means a 0.002% increase.)