At present, innovative products continue to emerge in China's exchange bond market, market trading is becoming more active, and the degree of opening up to the outside world is steadily increasing. In order to better meet the needs of new entrants and potential investors, and to help investors do their "introductory homework" in bond investment, and to systematically understand bond investment knowledge, this issue will introduce the analysis of bond market interest rates. Let's take a look together.
1、 What are the main factors affecting bond market interest rates?
Bond yields are influenced by five factors: economic fundamentals, funding, policies, supply and demand, and market sentiment.
Economic fundamentals mainly include economic growth and inflation indicators. If the economy faces downward pressure, there is a greater possibility of interest rate decline, which is beneficial for the bond market; The more severe the inflation, the more unfavorable it is for the bond market.
Funding aspect:Funding aspect usually refers to the amount of liquidity in the interbank market, which is closely related to the central bank's open market operations, tax factors, holiday withdrawal demand, and seasonal factors at the end of the month and quarter. Loose funding is beneficial for bond price increases, while tight funding poses a negative impact on the bond market.
Policy aspect:Policy aspects include monetary policy, fiscal policy, and regulatory policy.. The policy aspect affects the bond market by influencing the funding aspect, economic operation, and market participant behavior. Generally speaking, a loose monetary policy is favorable for the bond market, while a proactive fiscal policy is unfavorable. The impact of regulatory policies needs to be analyzed based on specific circumstances.
Supply and demand relationship:The supply and demand in the bond market directly affect bond prices. When supply increases or demand decreases, bond prices usually fall, and when supply decreases or demand increases, bond prices usually rise.. The supply and demand relationship of bonds causes disturbances to bond yields, but does not affect the trend. The supply side is the focus of observation, and issuing large amounts in the short term may pose a negative impact on the bond market.
Market sentiment: Investor sentiment is an important influencing factor of interest rate trends. Under the catalysis of factors such as policy and information, investor sentiment may lean towards optimism or pessimism, and promote rapid changes in interest rate trends.. Bonds are important safe haven assets. If market risk appetite decreases, funds usually flow out of the stock market into bonds, so we often see the phenomenon of "stock bond seesaw".
2、 What are the indicators for measuring economic fundamentals?
The following common indicators are used to measure economic fundamentals:
(1) Measuring indicators of economic growth
In the long run, nominal economic growth determines asset returns, which in turn guide debt costs. If the economy faces downward pressure, the overall interest rate level will also face downward pressure, which will benefit the bond market. Analyzing economic growth can help determine the trend of bond market interest rates, while GDP year-on-year growth rate and PMI are two important indicators for measuring economic growth:
GDP year-on-year growth rate:GDP refers to the market value of all final products (goods and services) produced by the economy and society (i.e. a country or region) using production factors during a certain period of time, that is, the gross domestic product.. GDP year-on-year growth rate refers to the growth rate of Gross Domestic Product (GDP) over a certain period of time compared to the previous period, year, or history. GDP year-on-year growth rate is usually used to measure economic growth.
Industrial Value Added:Refers to the final results of industrial production activities expressed in monetary form by industrial enterprises during the reporting period;; It is the balance of the total output of all production activities of industrial enterprises after deducting the value of material products and services consumed or transferred in the production process; It is the newly added value in the production process of industrial enterprises.
fixed assets investment:The total name of the workload of constructing and purchasing fixed assets and the related expenses in monetary terms, which is a comprehensive indicator reflecting the relationship between the scale, speed and investment proportion of fixed assets investment investment.
PMI (Purchasing Managers' Index): A leading indicator that reflects the economic situation and has strong predictive and warning functions. The PMI index is generally divided into composite PMI index, manufacturing PMI index, and non manufacturing PMI index, which respectively reflect the operation of the entire industry, manufacturing industry, and non manufacturing industry in the current period. PMI usually uses 50% as the dividing line between economic strength and weakness. When PMI is higher than 50%, it reflects the overall expansion of the economy; If it is below 50%, it reflects an overall economic contraction.
(2) Inflation measurement indicators
Inflation refers to the phenomenon of sustained and widespread price increases over a period of time. Short term interest rates are positively correlated with inflation and the inflation gap. The rise in short-term interest rates will be transmitted to long-term interest rates through the interest rate transmission mechanism. Therefore, when the inflation rate rises or exceeds expectations, it is often negative for the bond market, and bond yields are expected to rise as well. The level of inflation is usually measured by CPI and PPI:
CPI: The Consumer Price Index (CPI), which reflects the relative trend and degree of price changes in consumer goods and services purchased by urban and rural residents during a certain period of time. The year-on-year or month on month changes in CPI can be used to measure the degree of inflation.
PPI: Producer Price Index, which reflects the relative trend and degree of changes in the overall level of factory prices of all industrial products during a certain period of time. Through this indicator, the impact of factory price changes on industrial output value and added value can be observed.
3、 What is the focus of financial analysis?
The funding situation in the market is one of the key factors affecting bond yields and market trends. Money market interest rates reflect the cost of borrowing funds for financial institutions (especially banks), reflect the current supply and demand of funds in the financial system, and have a direct impact on the yield of short-term bonds. The most closely watched interest rate in the money market is the 7-day deposit institution collateralized repo lending rate (DR007), which is also a core indicator for the central bank to monitor the operation of the money market. The analysis of the relationship between quantity and price in the money market, as well as the proportion of maturity, can reflect the market's expectations for the funding aspect. When the general expectation is loose and the funding interest rate is low, the market tends to borrow short-term funds. When the expectation is tight, it generally tends to lock in risk and funding costs, borrowing long-term funds.
4、 How to conduct policy analysis?
Monetary policy and fiscal policy are the two most important factors affecting bond interest rates, and the impact of financial regulatory policies on bond interest rates is also increasing.
(1) Monetary Policy:Monetary policy is the general term for various guidelines, policies, and measures adopted by central banks to control and regulate the money supply and credit to achieve their specific economic goals.. Using various tools to regulate the money supply to adjust market interest rates, influencing private capital investment through changes in market interest rates, and influencing macroeconomic operations through policies and measures that affect aggregate demand. When the central bank adopts a loose monetary policy, the available funds in the financial market increase, costs decrease, and bond market yields often decline. The three major tools of monetary policy to regulate aggregate demand are the statutory reserve requirement ratio, open market operations, and rediscount policy.
① Statutory reserve ratio: Refers to the ratio of deposits held by a deposit money bank with the central bank in accordance with legal regulations to the amount of deposits it absorbs.. The true effectiveness of the statutory reserve requirement ratio policy is reflected in its ability to expand the credit of deposit money banks and regulate the money multiplier. Due to the multiplier relationship between the credit expansion ability of deposit money banks and the base currency issued by the central bank, the size of the multiplier is inversely proportional to the statutory reserve requirement ratio. Therefore, if the central bank adopts a tightening policy and increases the statutory reserve requirement ratio, it will limit the credit expansion ability of deposit money banks, reduce the money multiplier, and ultimately have the effect of shrinking the money supply and credit volume, and vice versa.
② Open market business: Refers to the activity of central banks buying or selling securities, handling base currency, and regulating the money supply.. According to the development of the economic situation, when the central bank deems it necessary to adopt a tight monetary policy, it sells securities and correspondingly recovers a portion of the base currency, reducing the amount of available funds for financial institutions; On the contrary, when the central bank deems it necessary to adopt a loose monetary policy, it buys securities, expands the base money supply, and directly increases the amount of available funds for financial institutions.
③ rediscount policy:rediscount refers to the process in which a deposit money bank requests discounting of commercial bills discounted by customers from the central bank in order to obtain credit support from the central bank.. The central bank adjusts the rediscount rate according to policy needs. When the central bank increases the rediscount rate, the cost of borrowing funds for deposit money banks increases, and the base currency shrinks, and vice versa.
(2) Fiscal policy: Fiscal policy is one of the main means of macroeconomic regulation by the government, which has a significant impact on economic operations. It can be divided into expansionary fiscal policy and contractionary fiscal policy. The expansionary fiscal policy mainly stimulates total social demand through expanding fiscal expenditures (increasing fiscal deficits), reducing taxes, and other means. Generally speaking, fiscal expenditure policies can be explored by examining the annual budget deficit and deficit ratio formulated by the government. The larger the fiscal deficit and the higher the year-on-year growth of the deficit ratio, the more planned government spending and the higher the probability of economic strength.
5、 How to analyze the supply-demand relationship?
The bond market yield is influenced by the supply and demand relationship of bonds. The supply pressure in the bond market often pushes up bond yields, while the strong demand in the market leads to a decline in bond market yields.
In terms of supply, the annual net increase of treasury bond, policy financial bonds and local government bonds is limited by the amount. Combining the maturity data, the annual total supply of interest rate bonds can be better predicted, and the issuing rhythm is affected by the changes in market yield. The supply elasticity of credit bonds is relatively large, and the issuance speed is affected by changes in yields and the pace of issuance approval. When bond yields rise, the pace of issuing credit bonds often slows down.
On the demand side, bank self operated funds are the main investors in interest rate bonds, while broad funds (public funds, bank wealth management, etc.) prefer credit bond investments. Therefore, bond investment demand is influenced by the funding arrangements of allocation institutions. At the same time, with the further deepening of the bond market opening policy, foreign institutional investors have gradually become important participants in China's bond market, and their behavior characteristics will also have an impact on the supply and demand relationship in the bond market. Changes in the size of institutions, such as bank outsourcing and investment restrictions on different varieties under corresponding regulatory policies, will have an impact on the supply and demand relationship of different varieties.
6、 How does market sentiment affect bond prices?
Investor sentiment is an important influencing factor on interest rate trends. Under the catalysis of factors such as policy and information, investor sentiment may lean towards optimism or pessimism, leading to rapid changes in interest rate trends. Market sentiment usually refers to risk appetite, which often affects bond market volatility in the absence of incremental information in the market. When risk appetite increases, bond prices fall and stock prices rise, commonly known as the "stock bond seesaw" phenomenon.
