10日周二，10年期国债活跃券“24附息国债11”（240011）收益率走低7.5BP，China Merchants believes that the shift in monetary policy to a "moderately loose" tone suggests that rate cuts are likely next year, opening up space for short-term interest rates to decline. Soochow states that there is a lag at the turning point for stocks and bonds, and before transitioning to a "bull market for stocks and a bear market for bonds," there will be a period of "dual bull markets" for both, expected to arrive next year, with the yield on 10-year government bonds possibly falling to 1.5%.
The meeting of the Politburo of the Communist Party of China held on December 9 continued the positive policy tone set in the September Politburo meeting, releasing multiple unexpected signals.
Among them, the meeting's determination of a "moderately loose" monetary policy is the first mention in fourteen years, leading to a sudden increase in expectations for monetary easing, reserve requirement ratio cuts, and interest rate reductions, which drove medium- and long-term Bond yields down collectively.
On Tuesday, the 10th, the yield of the 10-year Treasury Bond active coupon "24 Attached Interest Treasury Bond 11" (240011) fell by 7.5 basis points, reaching a minimum intraday yield of 1.8225%, continuing to set a historical low, with a cumulative decline of 10 basis points over two trading days, and a decline of 15 basis points within the week.
The yield of the 30-year Treasury Bond active coupon "24 Special Treasury Bond 06" (2400006) also continued to decline, dropping 7 basis points to 2.0450% at one point.
In the Futures market, Treasury futures rose strongly throughout the day, with the 30-year block orders contract rising by 1.37%, reaching a historic high, while the 10-year, 5-year, and 2-year Treasury futures also increased by varying degrees.
The Treasury Bond ETF market was all in the red, with the 30-year Treasury Bond ETF increasing by 1.87% and the 10-year Treasury Bond at 0.58%.
With the support of loose liquidity, can the bond market continue to rise?
Since last week, the bond market has rapidly played out a rush to run, with long-term interest rates breaking below the key level of 2%, after which it began to enter a contest between those who missed out and those who wanted to take profits.
Yesterday's Politburo meeting reignited the enthusiasm for going long in the bond market, solidifying confidence in the 'bond bull'.
The China Merchants Fixed Income Team led by Zhang Wei stated that the recent Politburo meeting has signaled an intensified growth policy. The shift in monetary policy towards a "moderately loose" tone indicates that cuts in reserve requirement ratios and interest rates are expected next year, opening up space for a decline in short-term interest rates, which led to a significant drop in the yields of 10-year and 30-year Treasury Bonds at the end of today's trading.
From historical experience, since 2020 (excluding 2022), the bond market has often been volatile in the 5-10 trading days before the December Central Political Bureau meeting, while post-meeting, the bond market tends to strengthen.
In terms of funds, China Merchants stated that although the liquidity will seasonally contract in mid to late December, the impact on long-term bonds is manageable. The decline in short-term interest rates may be hindered, and the interest rate curve is expected to flatten.
The China Merchants strategy team led by Zhang Xia believes that under the expectation of continued loose monetary policy, the central level of medium to long-term market interest rates may further decrease, enhancing the relative cost-effectiveness of Stock Assets over Bond Assets. If the profit-making effect in the equity market continues to improve, household deposits may shift to the equity market, which theoretically could provide significant upside potential for A-shares.
In terms of market performance, between 2013 and 2023, the probability of the market rising varied from early December to the Politburo meeting, to the Central Economic Meeting, and then 5 days, 10 days, 20 days, and one month after the Central Economic Work Meeting. However, regarding the Index, major Large Cap stock indices such as the Csi 300 Index and SSE 50 had a rise probability exceeding 50%, approximately 67%; the Chinext Price Index had a rise probability of about 50%, while for the CSI 1000 Index, the rise probability was around 33%.
This has also raised another layer of concern: under the stimulus of growth policies, will the rise of the stock market lead to a "stock-bond seesaw" effect?
Soochow believes that taking the "Stocks and Bonds See-Saw" from 2020 as an example, the SSE Composite Index rebounded in March 2020, while the 10-year Treasury Bond yield continued to decline during this period, only turning upward in April from its low point.
This asynchronous switching phenomenon can be understood through the MMF credit cycle, with the turning points of "Bull Stocks and Bear Bonds" usually occurring during the "Loose MMF + Loose Credit" or "Tight MMF + Loose Credit" phases, needing to wait for the verification of "Loose Credit". Bonds are more aligned with fundamentals compared to stocks, requiring continuous verification of "Loose Credit" before entering a state where the turning point is established.
Soochow further indicates that due to the time lag present at the turning points of stocks and bonds, there will be a period of "Bull Stocks and Bull Bonds" when transitioning to "Bull Stocks and Bear Bonds". Under the current setting of loose monetary policy, next year may welcome a "Bull Stocks and Bull Bonds" phase, based on our determination of significant interest rate reductions, expecting the 10-year Treasury Bond yield to decrease to 1.5%.
