China
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Investors Dump Long-Dated Treasury ETF At Record Pace Ahead Of Trump's White House Return
What does a 1.7% yield on a 10-year government bond signify?
Xinda Securities believes that the recent pricing of the 10-year government bond yields reflects the potential for a decline in the OMO rate next year. Based on the economic outlook and monetary policy environment for 2025, it is anticipated that a reduction of 50 basis points in the OMO rate may be necessary to achieve a marginal easing similar to that of 2024, which suggests that the 1.7% yield on the 10-year government bonds does not appear to be overly priced.
Top ten macro events globally in 2024: The US and Japan central banks both pivot, China's Assets explode, and epic surge of Gold and Bitcoin.
This year, major global central banks, including the Federal Reserve and the European Central Bank, have all entered a path of easing, while the Bank of Japan announced the end of the negative interest rate era. The narrowing of the interest rate differential between Japan and the USA briefly spurred a reversal in yen carry trades. Chinese assets have strongly rebounded under the boost of policy 'combinations'. The US elections have driven the 'Trump trade' to become popular, with Bitcoin and Gold, the two major assets, dominating in chaotic times.
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Is the next "explosive" market threshold for US Treasury bonds 4.75%?
Julian Emanuel, a strategist at Evercore ISI, stated that although long-term corporate earnings remain a driving force in the stock market, rising bond yields will pose the greatest challenge to the U.S. bull market. He expects that if the 10-year Treasury yield stays below 4.5%, the U.S. stock market will still have the ability to overcome pressure and continue to rise. However, if yields exceed 4.75%, it could trigger a longer and deeper stock market adjustment.
The best-performing major Assets in 2024 will be: Bitcoin, Gold, US stocks, and Chinese long-term bonds.
Huatai Fixed Income states that the leading Assets in 2024 will include Bitcoin, Gold, US stocks, and China long-term bonds, while lagging Assets will include domestic Commodities, Euros, and Crude Oil Product. From the perspective of the Industry and individual stocks, the leading Assets are backed by long-term trends such as changes in the AI Technology Industry Chain, China's emotional Consumer chain, and safe-haven Assets in an uncertain environment.
U.S. Treasury yields have surged. Has Wall Street really changed this time?
More and more investors now believe that the USA economy can withstand higher interest rates, and inflation threats will persist. Analysts suggest that if Trump stimulates inflation by increasing tariffs and is unable to control the increase in US debt supply through budget deficit cuts, the 10-year yield could easily surpass 5%.
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A-shares and Hong Kong stocks rose, the GEM increased by 0.59%, flying Autos surged, and government bond Futures collectively rose.
The concept of flying cars has seen a surge, with Wolong Electric Group hitting the limit up, followed by Citic Offshore Helicopter, Zhejiang Jindun Fans, Zhejiang Wanfeng Auto Wheel, Shangluo Electronics, and Hebei Jianxin Chemical also rising. On the news front, the General Office of the CPC Central Committee and the State Council issued "Opinions on Accelerating the Construction of a Unified and Open Transportation Market," aiming to deepen the reform of low-altitude airspace management and develop General Aviation and the low-altitude economy.
What does the Federal Reserve's "Skip" mean for the market?
Citi Research found that during the period when the Federal Reserve pauses interest rate cuts, the U.S. stock market usually performs well, but the sustainability of the rise depends on whether economic weakness leads to a restart of policy easing; U.S. Treasury rates usually rise at the pause or end of the cycle; for the dollar, if the interest rate cuts are only paused, the dollar performs laterally, if it is the last interest rate cut, the dollar will rise; after the pause, regardless of whether the easing cycle continues, Gold prices usually rise.
A-shares and Hong Kong stocks are rising, interbank bond yields are generally declining, and the yield on 10-year government bonds has fallen to 1.6645%.
The yield of the 1-year government bond 200013 decreased by 7.5 basis points to 0.94%, the yield of the 10-year government bond 240011 decreased by 3.05 basis points to 1.6645%, and the yield of the 30-year government bond 2400006 decreased by 2.75 basis points to 1.92%.
In October, China's holdings of US Treasury bonds hit their lowest level in over 15 years! Is the trend of reducing US Treasury bonds beginning to spread Global?
① On Thursday local time, the USA Treasury released the International Capital Flow Report (TIC) for October 2024; ② The report showed that the amount of US Treasury bonds held by foreign investors ended five consecutive months of growth in October; ③ Led by Japan and China, as many as seven of the top ten "creditors" of the USA chose to reduce their Shareholding that month. Meanwhile, China's US Treasury Hold Positions further hit a new low since 2009.
The central bank's discussions with some "aggressive trading" Institutions have shaken the market; who are the Block Orders in this round of bond bull market? State-owned large banks have received the most "attention".
① The central bank's morning consultations mainly involved Institutions based in Beijing, with very few Institutions from other cities attending the meeting, including cities like Shanghai where asset management Institutions are concentrated. ② In the past two weeks, the Block Buy Institutions for 10-year government bonds have shifted from Fund to Banks. ③ As incremental policies come into effect, the likelihood of economic stabilization increases, necessitating a reduction in expectations for the bond market in 2025.
Is the market too conservative? Bond traders expect the Fed to cut rates four times in 2025.
In terms of interest rate Options, some traders bet that the market's view is too hawkish, and the Federal Reserve will be closer to its September forecast: four rate cuts in 2025, each by 25 basis points, which would bring the implied federal funds target rate down to 3.375%. Some analysts believe that if Powell adopts a hawkish tone during the press conference, the rise in Bonds yields may be disrupted.
After breaking three barriers, the 10-year government bond hovers around the 1.7% integer mark, and multiple Institutions have begun to issue "warnings": the downward space is limited.
① On one hand, previous Trades have fully realized expectations such as interest rate cuts, and on the other hand, the market mostly anticipates that 1.7% is the latest intervention threshold by the regulators. ② At the end of the year, with the recovery of the economic fundamentals, some Institutions have changed their expectations for a strong ramp-up of stimulus policies in the short term. ③ A further significant decline in interest rates may require the new expectations for a round of MMF easing after the interest rate cuts are implemented.
FOMC Likely to Cut Rates by 25bps
The bond market is experiencing a "super week," with the 30-year Treasury Bond ETF rising more than 20% this year, and institutions state that volatility may continue after the New Year.
① The bond market experienced a "super week" of policy and trade; ② The 30-year Treasury Bond ETF saw an increase of over 3% in a single week, with an annual ROI of 20%; ③ Institutions do not have strong profit-taking motivation in the short term, and volatility may occur after the New Year.
The interest rates of the same industry certificates of deposit are rapidly declining, and under "moderately loose" conditions, there is hope to drop to 1.30%.
1. After the improvement in MMF transmission efficiency, the CD interest rate and the 7-day OMO rate will integrate within the next year. 2. Due to the faster decline of long-term bonds, the spread between the 10Y government bond and the 1Y CD has been compressing, and is currently at 13BP.
Bonds are referred to as the "God of War" in the market, with the 30-year government bond yield breaking "2" during trading, accelerating at the end of the year.
① Although the Fund made several profit-taking operations on government bonds earlier this week, there is still a net Buy of long-term government bonds overall, and Insurance Institutions also joined in the rush to buy bonds. ② The extent of monetary easing determines the upward potential of the bond market; as long as interest rate cuts are on the way, the bond market can remain optimistic. There may be a reserve requirement ratio cut before the end of the year.