- After two consecutive trading days of valuation adjustments, the main interest rate bonds in China's interbank market have stabilized and recovered. The yield on the active 30-year special government bond (2600002:CH) slightly dipped to 2.24%, while the 10-year government bond (260005:CH) yield fell to 1.7570%. The temporary easing of marginal tightening in the funding environment provided a buffer for trading sentiment.
- The derivatives market showed a simultaneous mild rebound, with all major contracts on the China Financial Futures Exchange holding steady. The main contract for 30-year government bond futures (TL2606) led the gains, rising 0.08% to 112.400 yuan, indicating a recovery in the willingness of long positions to take on assets after previous pressure was released.
- Huayuan Securities, a sell-side institution, released a new report indicating that based on the continuation of strong supply and weak demand characteristics in the first quarter's macro data, the urgency for short-term interest rate cuts and other broad easing tools has decreased. It is expected that in the second quarter, the yields on 10-year and 30-year government bonds will point to pricing centers of 1.70% and 2.1%, respectively.
Marginal Yield Curve Recovery and Liquidity Expectations
After consecutive declines in asset prices, the micro trading sentiment in China's interbank market is seeking a new balance point. The rapid rise in long-term and ultra-long-term interest rates previously objectively widened the safety cushion for allocation institutions. Early Thursday trading data showed that buying forces gradually emerged at key points, promoting a flattening recovery of the yield curve. Marginal changes in the funding environment are one of the core driving forces behind this stabilization. As the previous trend of tightening funds temporarily halted, the central rates for overnight and seven-day repos stabilized, greatly alleviating the pressure on leveraged funds to close positions. Market participants are currently focusing on the upcoming 30-year special government bond reissuance window, where the bid-to-cover ratio and final pricing in the primary market will directly determine the valuation anchor for ultra-long bonds in the secondary market.
Pricing Game of Special Government Bond Reissuance Window
The supply pace of special government bonds and the market's capacity to absorb them are key variables currently dominating the long-end shape of the yield curve. The latest transaction of the 30-year special government bond 2600002 was at 2.24%, slightly down by 0.2 basis points from the previous day's close. This slight fluctuation reflects the high level of disagreement between bulls and bears at key points. For trading desks, the primary market's bidding results are not only a confirmation of absolute yields but also a stress test of the entire market's duration preference. If the reissuance is priced below the secondary market valuation, it may trigger a new round of buying frenzy; conversely, if priced higher, it may exacerbate the adjustment pressure on long-term interest rates. Traders generally prefer to maintain a neutral duration exposure before the bidding results are announced to avoid potential supply shock risks.
Institutional Behavior Divergence Amid Asset Shortage
The current low level of absolute yields is intensifying behavioral divergence among different types of institutions. Traditional allocation desks, such as insurance companies and large commercial banks, face severe under-allocation pressure, but the 1.7570% yield on 10-year government bonds offers limited coverage for their liability costs. Some asset management institutions with non-fixed income product investment channels are adopting more flexible cross-asset strategies, deeply linking their asset allocation decisions with equity market performance. This mindset of not necessarily having to allocate bonds leads to a temporary shift in marginal pricing power towards trading funds in the bond market, increasing intraday friction costs and volatility frequency.
Cross-Market Sentiment Spillover and Stock-Bond See-Saw
The marginal easing of geopolitical tensions has had a subtle spillover effect on risk appetite in China's financial markets. With the Middle East conflict potentially reaching an initial peace framework, global risk aversion has cooled, coupled with a partial recovery in domestic credit easing expectations, the Shanghai Composite Index (000001:CH) recorded a gain of about 0.25% in early trading. This moderate warming of the equity market has, to some extent, diverted some marginal funds seeking absolute returns, creating a slight crowding-out effect on the bond market. However, since the recovery strength of the stock market has not yet formed a trend-based right-side signal, the overall intensity of the stock-bond see-saw effect remains limited, failing to fundamentally reverse the asset shortage logic in the bond market.
Forward Curve and Derivatives Market Pricing
The treasury futures market on the China Financial Futures Exchange provides important forward guidance for the spot market. The two-year (TS2606) and five-year (TF2606) contracts are reported at 102.530 yuan and 106.180 yuan, respectively, with changes close to zero, indicating that the current liquidity expectations have been fully priced in for the short to medium term. Meanwhile, the 10-year (T2606) and 30-year (TL2606) contracts rose by 0.03% and 0.08%, respectively, with the relative strength of ultra-long-term contracts confirming Huayuan Securities' judgment that the bond yield curve is expected to moderately flatten in the next six months. Under the constraints of low coupon rates, small arbitrage space, and limited capital gains, institutional investors are increasingly using treasury futures tools for duration management and basis trading to enhance portfolio returns within a narrow profit margin.
