Financial Services Association, January 2 (Editor Yang Bin) After New Year's Eve, interest rates in the capital market generally fell. In the morning, the weighted average price of DR007 fell by about 32 BPs to 1.66%, and the average price of DR001 fell by about 12BP to 1.54%. Although the funding level for New Year's Eve is stable, the capital level is usually tightened in stages in mid-early January due to multiple factors such as loan investment, withdrawal, and tax periods, and January 2025 may also face pre-issuance of government bonds. According to institutional estimates, the interbank liquidity gap in January-February exceeded 1.3 trillion yuan, and the probability of a downgrade before the Spring Festival is high.

Since December, funding was tight and then loosened, and fluctuated normally at the end of the year. In mid-early December, due to factors such as mass issuance of new local replacement bonds and tax periods, R007 and DR007 continued to rise. R007 once exceeded 2.1%, and DR007 once exceeded 1.9%. Since then, the willingness of major banks to finance has increased, funding has loosened, and DR007 has fallen below 1.5% at most. However, after December 25, due to New Year's Eve capital requirements, the willingness of major banks to finance declined, funding levels converged, and the DR007 price and capital stratification phenomenon both increased.

Qin Han, head of fixed income at Zheshang Securities, believes that the central bank has no intention of excessively easing capital, and that the banking system is less neutral in short-term capital.

In December, the central bank released a total of 833 billion yuan in net capital through reverse repurchases, 1,150 billion yuan in net return through MLF, 1,400 billion yuan in liquidity through buyout reverse repurchases, and 300 billion yuan through treasury bond trading.

Looking back on previous financial performance after New Year's Eve, Li Qinghe, head of fixed income at Guolian Securities, said that in mid-early January, capital was usually tightened in stages due to multiple factors, including liquidity pressure brought about by banks speeding up credit investment to achieve a “good start” at the beginning of the year, centralized maturing of reverse repurchases on New Year's Eve, and peak tax payments in January; in addition, cash demand rose sharply before the Spring Festival. Central banks often increase their liquidity investment, leading to a peak in net investment.

Currently, at least 1648.2 billion yuan will expire in the open market in January 2025, of which 653.2 billion yuan will expire in reverse repurchase and 995 billion yuan will expire in MLF. Today, the central bank invested 24.8 billion yuan in reverse repurchases on the open market, with a net return of 273.8 billion yuan.

The CITIC Securities FICC team believes that 2025 is similar to 2020, 2022, and 2023. Liquidity in January also faces a combination of tax period and Spring Festival withdrawal demand, and the tax period may show a slight increase in capital interest rates in stages. At the same time, 2025 may be the year ahead of the pace of government debt financing, and January still needs to be wary of the impact of government bond supply on the financial side.

Based on government debt issuance and capital allocation, regular fiscal revenue and expenditure, credit investment, M0 and cash on hand requirements, Jin Yi, Chief Fixed Income Officer of Guohai Securities, estimated that there may still be an interbank liquidity gap of 1346.9 billion yuan from January to February 2025.

Li Qinghe expects a high probability of a downgrade before the Spring Festival. The downgrade can maintain market liquidity in due course. From the perspective of banks, in the context of current credit easing policies, it will help enhance banks' ability to support the real economy. The downgrade will reduce banks' debt costs and avoid excessive reduction in banks' profit margins.

Even without a downgrade, the CITIC Securities FICC team believes that the central bank's current rich liquidity management tools and “moderately loose” monetary policy may be able to iron out capital fluctuations through a combination of various tools such as buyouts and treasury bond purchases.