- China's bond market rose across the board on Thursday, with the yield on the actively traded 10-year government bond 260005 generally falling by 0.8 basis points to a range of 1.40% to 1.7185%. The yield on the 30-year special government bond 260002 hit a historic low of 2.2060%.
- Liquidity remains relatively loose, as the People's Bank of China (PBOC) conducted a 7-day reverse repo operation of 101.3 billion yuan today, with the rate unchanged at 1.40%, marking the seventh consecutive trading day of net injection in the open market.
- April's domestic credit macro data slowed, and the Shanghai Composite Index continued to fluctuate and adjust. Coupled with the sudden escalation of geopolitical tensions in the Middle East, multiple safe-haven buying resonated to push the yield curve downwards overall.
Tax Period Disturbance Fades, Liquidity Stable Across Periods
The interbank market's liquidity smoothly passed through this tax period, with the previous seasonal tax period rise having a significantly weaker impact on liquidity than in the same period in previous years. As the phased influencing factors gradually dissipate, recent interbank market liquidity has returned to a more ample state, providing direct funding support for the bond market. In terms of open market operations, the People's Bank of China conducted a 7-day reverse repo operation of 101.3 billion yuan today, with the winning rate stable at 1.40%, fully meeting the funding bidding needs of primary dealers. Although today's single-day net injection scale was reduced to 1.3 billion yuan, the open market has achieved net injection for the seventh consecutive trading day, indicating the regulatory authorities' intention to maintain a reasonably ample liquidity policy baseline. Feedback from brokerage traders pointed out that since the expected significant tightening of liquidity did not occur, institutions' short-term bullish sentiment has once again dominated the market.
Fundamental Data Temporarily Slows, Supporting Bond Market Base Demand
From a macroeconomic perspective, the overall performance of credit and related economic data disclosed in April was weak, indicating that the current intrinsic momentum of the real economy is still in a phase of moderate fluctuation and recovery. Against this backdrop, the market generally expects that while the downside risk to the economy is limited, a significant explosive rebound is also unlikely in the short term. The latest report from Citic Securities' fixed income research team pointed out that the macro economy is expected to continue the structural characteristics of relatively weak domestic demand and sustained high external demand in the second half of the year, with a significant reduction in the volatility of overall growth. This fundamental pattern has driven the demand for reallocation of residents' assets, and with the continued manifestation of the deposit migration effect, the long-term attractiveness of bond assets as institutional base positions remains, providing solid funding allocation support for the bond market.
Risk Aversion Driven by Geopolitical Conflict, Cross-Market Funds Flow into Bond Market
In addition to the dual benefits of fundamentals and liquidity, the renewed escalation of external geopolitical risks has become the direct trigger for today's safe-haven funds returning to the bond market. According to foreign media reports, the Iranian Revolutionary Guard announced today that it had carried out a military strike on a U.S. Air Force base in response to a previous U.S. military attack near Abbas Port Airport. Meanwhile, the Kuwaiti military also stated that its air defense system is intercepting missile and drone threats from the enemy. The sudden tension in the Middle East has directly suppressed the performance of global and domestic equity assets. Today, the Shanghai Composite Index closed lower in early trading, with traditional heavyweight sectors such as liquor leading the decline, and the adjustment in the equity market led more safe-haven funds to flow into government bonds and other safe-haven assets, with the prices of ultra-long-term varieties such as 30-year government bonds recording significant gains.
Central Bank's Monetary Policy Operations Remain Restrained, Short-Term Interest Rate Fluctuations
Looking ahead, many market analysts and traders believe that although bullish sentiment currently dominates, the space for further interest rate declines may be constrained by policy defenses. The People's Bank of China currently appears more restrained in its total monetary policy operations and may guide market funding rates to operate around policy rates in the future by withdrawing medium- and long-term liquidity. Citic Securities' research predicts that the timing of total monetary policy operations may be postponed in the second half of the year, with the 10-year government bond yield likely to maintain a fluctuating pattern in the range of 1.70% to 1.90%. If core inflation in the real economy rebounds in the future or the central bank's policy guidance marginally tightens, market pricing may face revaluation risks. Therefore, phased trading opportunities will rely more on the return of the funding side to neutrality and marginal changes in inflation expectations.
