Recently, the bond market has continued to be under pressure, and ultra-long-term bond yields have approached this year's high.

Towards the end of the year, the "seesaw" effect of "stock market rises, bond market falls" or vice versa has also weakened significantly, and market views have begun to diverge significantly. At present, interest rate bonds are weakening as a whole, especially ultra-long-term special treasury bonds. For example, the yield of the 30-year "25 ultra-long special treasury bond 06" has risen to about 2.24%.

On the news side, the much-watched central bank treasury bond trading operation has finally landed: a net purchase of 50 billion yuan this month, more than the previous month, but still lower than market expectations.

However, many institutions believe that investors have actually lowered their expectations in advance. The current pressure on the bond market comes more from multiple factors on both sides of supply and demand - such as the issuance of local bonds and the weakening of bank allocation demand.

Sun Binbin, chief economist of Caitong Securities, reminded: "Price is more important than quantity. "The real significance of the central bank's buying and selling of treasury bonds is to provide liquidity support and improve the relationship between supply and demand in the bond market. But more importantly, it depends on the overall "background" of monetary policy - that is, whether it will be further loosened in the future.

Ultra-long-term bonds continue to weaken, and the pattern of "short and strong and weak" of treasury bonds has intensified

Last Wednesday, the overall bond market did not fluctuate much, but the performance of treasury bonds of different maturities was clearly differentiated, and short-term and medium-term treasury bonds rose slightly:

This has further widened the spread between 10-year and 30-year Treasury bonds, reflecting market concerns about the long-term economic outlook or policy direction.

In terms of policy, the central bank bought a net of 50 billion yuan of treasury bonds through open market operations in November, the second consecutive month (20 billion yuan in October). Although the scale increased from the previous month, it was still lower than market expectations, especially compared with the average monthly bond purchase level last year. At present, bond market trading mainly revolves around two main lines:

It is worth noting that after the announcement of the bond purchase in November, the ultra-long bonds that had continued to fall briefly rebounded, indicating that some investors believe that "the most pessimistic moment may have passed". However, overall, ultra-long bonds are still the weakest link, and the yield of many 30-year Treasury bonds has risen to a high level this year.

To put it simply: short-term bonds are relatively stable supported by funds, but investors are still cautious about long-term interest rate risks, resulting in "stable short-end and weak long-end", and term spreads are getting wider and wider.

The central bank bought 50 billion bonds, why didn't the market buy it?

Since November, Treasury yields have continued to rise:

Although the interbank short-term funding rate (DR001) fell below 1.3% in early trading on December 2, indicating abundant liquidity, the bond market did not rebound as a result, and long-term bonds continued to fall. It was not until the central bank announced a net purchase of 50 billion yuan of treasury bonds this month that interest rates temporarily stabilized.

In this regard, Sun Binbin, chief economist of Caitong Securities, analyzed: "The market originally had high expectations for the scale of the central bank's bond purchases, but although 50 billion yuan was more than the previous month, it was still lower than expected. However, many investors have actually lowered their expectations in advance, so the reaction after the 'boots landed' was relatively calm. ”

The key is "price", not "quantity"

Sun Binbin stressed that rather than how many bonds are bought, we should pay more attention to the "background" of monetary policy - that is, changes in the cost of capital. He pointed out that the funding rate has continued to fall since the end of November, and DR001 has even fallen below 1.31%, and it is expected to decline further in December, which may be a more important policy signal than the scale of bond purchases.

Looking back at the second half of this year, the bond market performance was weak, except for macro factors, the funding rate has been running in the range of 1.3%~1.5%, similar to the fourth quarter of last year. Therefore, even if this bond purchase falls short of expectations, he also advises investors:

"Buy in the 'background'" - as long as the price of funds remains low, the bond market will be supported.

The central bank's purchase of 50 billion bonds is just a "slow simmer", and what really matters is whether the cost of funds continues to be loose. At present, short-end interest rates have fallen significantly, which may be the key to whether the bond market can stabilize in the future.

Why does the bond market continue to fall?

Recently, the bond market has fallen continuously, especially the 30-year ultra-long-term Treasury bonds, which have been the weakest. There are several key phenomena behind it that are worth paying attention to: Why are ultra-long-term bonds particularly "hurt"?

Too much supply: This year is the second year to significantly increase the issuance of ultra-long-term treasury bonds, and the supply of 30-year bonds in the market is significantly high.

Banks "can't catch": Banks' interest in ultra-long-term bonds has weakened under the pressure of assessment duration and profits. For example, although the purchase volume of rural commercial banks has more than doubled that of previous years, it is close to the limit; Large banks are selling old bonds to cash in floating profits (similar to "falling into the bag"), resulting in a lot of selling pressure on 30-year treasury bonds.

The trading order is "short": funds and brokerages are the main selling forces; Brokerages are also borrowing a lot of securities to sell short 30-year treasury bonds; Public funds are more cautious in their operations due to the "new regulations on redemption fees" and tend to reduce their positions.

Insurance does not buy: Insurance companies, which are the main buyers of long-term bonds, prefer local government bonds this year and have limited allocation to 30-year treasury bonds.

The combination of these factors has intensified the volatility of ultra-long-term bonds and put pressure on prices.

Recently, many banks have removed 5-year fixed deposits, raised the threshold for large-denomination certificates of deposit, and even let 3-year products "disappear", which has attracted market attention.

How to go about the bond market at the end of the year?

The decline in interest rates needs to be strongly catalyzed, and there is currently a lack of clear signals; Although the capital side is loose (DR001 has broken 1.3%), the market is more concerned about "whether it can be sustained"; In this environment, it is safer to take coupons (hold and earn interest) than to gain from game capital; The interest rate curve may continue to "steepen" (stable on the short end and weak on the long end); The volatility of 30-year treasury bonds may further increase, and we need to be wary of the risk of trading congestion and emotional ebb tide.

Ultra-long-term bonds are now "oversupplied + buyers are weak + trading short", and it is difficult to improve under the triple pressure. Banks are also quietly shortening the duration of debt, and their ability to allocate long-term debt in the future is limited.

At the end of the year, the bond market is likely to continue to fluctuate, with the short end supported by funds and the long end having to wait for new catalysts.