On the first trading day after the May Day holiday, China's interbank market showed structural adjustments, with the yields of major interest rate bonds in the secondary market generally rising. Among them, the yield of the 30-year government bond active coupon 2600002 touched 2.2525% during the session, up 2.75 basis points from the previous trading day, before slightly retreating to 2.2475%.
- The marginal convergence of liquidity expectations has become the core variable putting pressure on the bond market. On Wednesday, the People's Bank of China (PBOC) conducted a 300 billion yuan three-month outright reverse repo operation, significantly reducing the amount due on the same day by 500 billion yuan. In addition, the open market seven-day reverse repo achieved a net withdrawal of 266.9 billion yuan in a single day.
- There are signs of risk appetite shifting across assets. In contrast to the weakening bond market, China's equity market rose significantly, with the Shanghai Composite Index (000001:CH) closing up 1.3% in the morning, and the STAR 50 Index rising more than 8% driven by the semiconductor sector, with the stock-bond seesaw effect dominating the capital flow on the first day after the holiday.
Liquidity Contraction and Central Bank Expectation Management
The scale changes in open market operations on the first day after the holiday conveyed a cautious liquidity signal to the market. The PBOC reduced the scale of outright reverse repo operations to 300 billion yuan, effectively withdrawing medium- and long-term liquidity. Meanwhile, the unexpected delay in the announcement time of the regular seven-day reverse repo operation also exacerbated traders' concerns about the normalization of funding supply at the beginning of the session. Although the primary dealers' demand was fully met in the end and the winning bid rate remained unchanged at 1.40%, the single-day net withdrawal of 266.9 billion yuan, coupled with the reduction in outright reverse repo, kept the market vigilant about the possibility of a subsequent upward shift in the central level of money market rates.
Ultra-Long End Pricing and Primary Market Game
Term premiums are particularly evident in long-end and ultra-long-end government bond varieties. The 50-year special government bond auctioned by the Ministry of Finance (MOF) in the morning had a winning bid rate of 2.52%, which was about 2 basis points higher than the latest transaction level of active coupons in the secondary market. The primary market auction results falling short of expectations directly pressured the secondary market, leading to a comprehensive decline in the main contracts of government bond futures. Among them, the main contract of the 30-year bond (TL2606) fell by nearly 0.7%, with an intraday low of 112.170 yuan; the main contract of the 10-year bond (T2606) also slightly declined by 0.08%. This reflects that in the current environment of relatively low absolute yield levels, institutions' tolerance for the valuation of ultra-long-term varieties is decreasing.
The Hedging Effect of Equity Market Valuation Recovery
The strong performance of risk assets constitutes another important macro dimension suppressing bond market sentiment. Reflecting the rise in valuations in the overseas technology sector, a large number of semiconductor and memory chip-related stocks in China hit the daily limit, pushing the STAR 50 Index significantly higher. This technology stock-led structural market has attracted some allocation funds to temporarily shift from fixed-income assets to the equity market. If the bullish window of the equity market continues in the short term, the bond market will continue to face selling pressure from asset allocation rebalancing while dealing with tightening funding conditions.
Future Liquidity Observation Anchors
Based on the current market data feedback, the future trajectory of China's bond market will highly depend on the central bank's micro-adjustment pace of funding. If the cost of liabilities on the commercial banks' side rises substantially due to the reduction in central bank liquidity injections, the leverage behavior of non-bank institutions in the repo market will be significantly curbed. The trading logic has partially shifted from the previous asset shortage-driven to a revision of wide monetary expectations. The market will closely monitor the net injection situation of open market operations in the subsequent trading days of this week to determine whether this convergence of funding is a post-holiday seasonal phenomenon or a trend micro-adjustment of the policy center.
