Interest Rate Reduction Is A Long-Term Trend. Capital Cost Determines The Rise Of Long Debt And "Money Scene".

There is a downward trend in the cost of capital, but the overnight and 7 day repo rate is hard to return to the low point. After steady liquidity, overnight and 7 day repo rates have downward momentum. However, compared with 4-5 months, the biggest change of funds now is that the leverage ratio of the market is much higher than that of that time, leading to overnight and 7 days. Capital supply and demand The exchange market is particularly evident. Therefore, the downside space of overnight and 7 day repo rates may be relatively limited, and more will be reflected in the narrowing of the spread between the repo rates of each period. It is initially believed that the operating range of overnight and 7 day repo rates may be 1.7%-1.8% and 2.2%-2.3%.

After several days of national day, the yield of treasury bonds dropped sharply, and the yield of 10 years was the lowest from 3.25% before the festival to 3.10%. At such a critical point, the market is very concerned about the level of yields on the 10 - year treasury bonds. We believe that in the next 10 years, the rise of the national debt will probably depend on the downward trend of the cost of capital.

Since 2014, the bond market is basically a bull market atmosphere. Each adjustment time does not exceed 1 months, and the adjusted high return point decreases in turn. The fundamental reason for going out of the bull market is that high economic growth is gone forever.

However, this does not mean that interest rates can be lowered to the lowest level and the middle trend may be repeated. At present, among the various factors, Bond Market The biggest influence of the trend is the liquidity, and the point of return is largely dependent on the cost of capital. Therefore, the yield of national debt can be analyzed from the trend of the difference between the 10 year treasury and the 7 day repo rate.

The adverse effects of foreign exchange are temporarily eliminated and liquidity needs not be worried in the short term. In 8-9, due to the significant depreciation of the RMB, the pressure on the outflow of foreign exchange accounts for a great deal and the interbank market liquidity has been affected. After entering October, the trend of the RMB is stable, even the offshore exchange rate and the shore price are upside down. The pressure on the outflow of foreign exchange accounts has been greatly reduced, and there has been no big negative factor in the interbank market liquidity.

Since July 2008, the spreads between the 10 - year treasury bonds and the 7 - day repo rate are roughly 60BP. Spreads show the following characteristics: first, when liquidity is tight, the 7 day repo rate rises faster, resulting in a sharp decrease in spreads and even negative values. Second, when liquidity tends to be loose, the 10 year treasury bonds tend to react more quickly and spreads will also narrow. Third, when liquidity gradually becomes stable and capital interest rates enter the downstream channel, the downward trend of the 10 year treasury bonds slows down. At this time, the 10 year treasury bonds and the 7 day repo rates tend to expand.

At the present time, Capital side The turning point has been evolving steadily. According to this rule, the yield of treasury bonds has already been reacted in advance, and the next space depends on the downward trend of the cost of capital. If the 7 day repo rate is at 2.2%-2.3%, the interest margin space will remain at the current level of 60BP, then the interest rate of the 10 - year treasury bonds will be 2.8%-2.9%, if the interest rate rises to 70BP, then the interest rate of the 10 - year treasury bonds will be 2.9%-3.0%. Among them, 3% is the key point, do not rule out a period of shock in the interval of 3%-3.2%.

In the late 10 years, the yield of treasury bonds is getting closer to 3%. The difficulty of operation is increasing, and the risk of increasing holdings is increasing. Instead, the opportunity is reduced. If the market is adjusted, the 10 - year treasury bonds can go back to 3.2% or more. From the point of view, the probability of a staged market in the first quarter of next year will be greater. In December this year, it would be a better time to increase holdings.

Interbank ten year bond yields close to 3%