According to the research report released by Tianfeng Securities on the Smart Finance APP, there is indeed a possibility of further reducing the interest rates on existing housing loans, taking into account the latest mortgage policies and interest rate changes this year. Considering the actual impact of reducing the interest rates on existing housing loans in 2023, it is expected to have limited negative impact on the bond market. As for the potential bullish effect of the market's attention to the combination of reducing the interest rates on existing housing loans and interest rate cuts on the bond market, it needs to be considered in conjunction with the People's Bank of China's regular supervisory and curve management.

How much to adjust? How big is the impact?

One is based on the previous stock housing loan interest rate of 4.27% announced by the central bank, compressed to the weighted average interest rate of new housing loans in the second quarter of this year, which is 3.45%, a compression of 82bp, corresponding to an annual reduction of about 31 billion yuan in borrower's interest expenses.

Another calculation method is based on the mid-year report of the Bank of Communications in 2024. In the first half of 2024, the annualized average yield of existing medium and long-term personal loans is about 4.0%, which is reduced to the weighted average interest rate of new housing loans, which is 3.45%, a compression of about 55bp, corresponding to an annual reduction of about 21 billion yuan in borrower's interest expenses.

How do we view the market impact?

After the interest rates on existing housing loans were reduced in August 2023, multiple factors such as funds and government bond supply have been combined. In hindsight, the impact of reducing the interest rates on existing housing loans on the bond market may be limited.

On July 14, the central bank explicitly announced the adjustment of existing housing loans. The equity market real estate index started trading on this issue from mid-July, and continued until early August. Market expectations then declined. On August 31, the central bank announced the official notification, including further real estate increment policies, but the equity market did not further expand trading.

From the perspective of market expectations, although reducing the interest rate of existing housing loans does benefit the people, the average amount per household is relatively limited, and it is difficult to drive effective demand in the residential sector due to the decrease in interest rates. Moreover, reducing existing housing loans does not mean increasing new loans, so the impact on the increase in real estate demand is also expected to be limited.

From the perspective of institutional behavior, the reduction in interest rates on existing housing loans does have a certain impact on banks' existing business, and may further exacerbate the shortage of assets and profits.

Considering the actual impact of the reduction in interest rates on existing housing loans in 2023, Tianfeng Securities expects limited negative impact on the bond market.

As for the market's concern about the combined effect of reducing interest rates on existing housing loans and interest rate cuts on the bond market, Tianfeng Securities believes that it is necessary to consider it in conjunction with the central bank's regular supervision and curve management.