Continued Devaluation Of The Renminbi Will Still Face Upward Pressure On Yields Later.

Interest rate debt investment strategy: we believe that the downward trend of interest rates is only a downward trend after the upstart, and there is little room for further downlink.

The main purpose of the new guidelines is to limit the excessive growth of off balance sheet business represented by bank financing. However, judging from the specific impact, the guideline is still a framework guide. Some specific details, such as how to implement the principle of "substance over form", will determine the extent of supervision. We can continue to pay attention to whether there are more rules to follow.

But it is important to note that even the substantive policy of this guideline has not changed much.

Cause the current round

No major changes have taken place in the main factors, such as the direction of tighter regulation, the continued rise in commodity prices, the continued depreciation of the renminbi, and the upward trend in overseas returns.

Therefore, the latter yield will still face upward pressure, and investors are advised to operate cautiously.

First, the supervision of off balance sheet is aggravating, asset shortage or capital shortage.

On Wednesday, the CBRC issued the guidelines for risk management of off balance sheet business of commercial banks (Revised Draft). First of all, the guideline changes over the past 11 years.

(1) compared with the 11 year legal provisions, the concept of off balance sheet business has been expanded: from the previous guarantee class and part commitment category to guarantee commitment category, agency investment and financing service category, intermediary service category, and other categories four categories.

(2) continue to emphasize that there is no rigid payment in the off balance sheet business of banks. For example, in the twenty-one clause, it is pointed out that "commercial banks should not stipulate or undertake credit risks in any form when undertaking agency investment and financing services and intermediary services."

(3) the core of this guideline is to weigh the bank's commitment to credit risk according to the principle of "substance is more important than form".

As stipulated in the twenty-fifth provision, "the provision for impairment of guarantee commitments and the off balance sheet business of the investment and financing services and the intermediary services in the form of credit risk" shall be taken as a guarantee undertaking business bank to undertake the credit risk, the risk assets weighted out of the table and the occupation of capital, whereas the off balance sheet financing business needs to determine whether or not the bank needs to take risks to determine whether it is necessary to take out the risk weighted assets and occupy the capital.

Under this expectation, there will be some scruples when banks conduct business, and the barbaric growth era of off balance sheet business will come to an end. The growth of off balance sheet financial management will slow down. Second, the regulatory thinking to control the expansion of bank credit in the past 16 years has been extended in this guideline. In the early stage, although the central bank has controlled the growth of basic currencies, the logic of "money and asset shortage" caused by the rapid expansion of banks may be affected by the increase in the monetary multiplier caused by the use of off balance sheet business. As for the extent to which financial growth will slow down, will banks be forced to sell assets to deal with them, which may depend on whether more stringent regulatory policies are implemented in the late stage. We will continue to track relevant regulatory policies. We believe that two points remain to be determined. First, the regulatory framework has been completed, and there may be specific policies at any time.

Second, debt and commodities are rising. Debt is only a rebound after many falls.

On Wednesday, commodity prices continued to rebound as interest rates dropped sharply. Before we analyzed, in the medium to long term, there was a significant negative correlation between commodity prices and bond prices, and short-term increases could occur simultaneously.

The face has maintained a broad rebound after the rapid decline in the early stage, and there is no room for further rebound in the late stage, because at present, the factors leading to the rise in the current round of returns have not changed fundamentally: the capital side is loose because of the short-term net investment, but the cost of the open market will increase after the two trading days. If the central bank maintains the volume of the first three trading days, there will be a net return, and the capital side may be tightened. The commodities have risen considerably for two consecutive days after a slight adjustment. The data released by the US have continued to improve, the US dollar index has continued to innovate, the US bond yields have been rising, and the RMB continues to depreciate and innovate continuously. As for bond price rise, we think it is mainly money.

And from the current market sentiment, institutions are generally cautious, there has been no obvious change, relative bonds may be more optimistic about stocks and commodities, so we believe that the downward trend in interest rates is only a sharp rebound after the rebound, and continue to rebound in limited space, there is still upward pressure on the latter.

In terms of the investment strategy of credit bonds, besides the conduction of interest rate debt adjustment, credit bonds themselves also have many uncertain factors. For example, the supervision of future off balance sheet business is stricter, the demand for credit debt will decline, and the difficulty of issuing credit bonds at the first level is obviously increasing. Therefore, we still discuss investors to reduce leverage.

On Wednesday, the CBRC consulted on the risk management of off balance sheet business of commercial banks. The guidelines extended the off balance sheet business to a more detailed classification, and established a comprehensive risk control system and framework.

(1) soliciting opinions has continued the trend of tighter supervision of off balance sheet business, controlling the excessive credit expansion of banks, and thus will have a negative impact on the issuance of financial services.

(2) even after considering the financial returns, the demand for credit debt will still decline, mainly for two reasons.

First of all, a very important reason for the current shortage of assets is that it does not need to pay the reserve fund, so it will enlarge the money derived multiplier. After the return to the table, the decrease of the derived multiplier will lead to a decline in the overall demand for the bond.

Secondly, after considering the difference between interest rate debt and credit debt capital, the bank will give priority to interest rate debt when the interest rate is low, so the proportion of credit debt will decline.

(3) strict supervision of off balance sheet business will increase the credit risk or credit debt supply pressure.

Compared with the 11 year rule, the new regulation is more stringent for the supervision of off balance sheet business. For example, the guarantee undertaking category, the investment and financing service category and the intermediary service in the off balance sheet business which actually bear credit risk, besides the provision of capital, there is also provision for impairment.

The provision for impairment reserve will directly affect the performance of banks. It is expected that banks will reduce interest in off balance sheet business such as bank acceptance, letter of guarantee and letter of credit in the future. At present, it is difficult for some enterprises to obtain bank loans. They can only survive through bills. If the total amount of future bills is reduced, it will undoubtedly accelerate the risk exposure of such enterprises with poor qualifications, and do not exclude the financing of the bond market after the turnaround fails, so as to improve the supply pressure of credit bonds.

On Wednesday, the bond market was more active, and the yield of interest rate debt dropped significantly. The range was 2-4bp. Treasury bond futures continued to rise in the afternoon and rose sharply throughout the day.

For the latter stage, we need to pay attention to:

First, the supervision of off balance sheet is aggravated, assets shortage or capital shortage.

On Wednesday, in order to further guide the development of the off balance sheet business of commercial banks and strengthen the risk management of off balance sheet business of commercial banks, the China Banking Regulatory Commission (CBRC) carried out a comprehensive revision of the guidelines for risk management of commercial banks' off balance sheet business (No. 2011 of Banking Regulatory Commission [No. 31]), forming the guidelines for risk management of commercial banks' off balance sheet business (Revised Draft) and seeking public opinions from the public.

In this regard, we believe that, first of all, the main changes in the guideline are 11 points:

(1) compared with the 11 year legal provisions, the concept of off balance sheet business has been expanded: from the previous guarantee class and part commitment category to guarantee commitment category, agency investment and financing service category, intermediary service category, and other categories four categories.

Among them, agency investment and financing services include, but are not limited to, entrusted loans, entrusted investments, non guaranteed capital management, Valet trading, agency issue and underwriting bonds.

Intermediary services include, but are not limited to, agent payment, financial advisors, asset trusteeship, custodial services, etc.

In short, there are clear definitions of off balance sheet financing and so on. They all belong to off balance sheet business.

(2) continue to emphasize that there is no rigid payment in the off balance sheet business of banks. For example, in the twenty-one clause, it is pointed out that "commercial banks should not stipulate or undertake credit risks in any form when undertaking agency investment and financing services and intermediary services."

{page_break}

(3) the core of this guideline is to weigh the bank's commitment to credit risk according to the principle of "substance is more important than form".

As stipulated in the twenty-fifth provision, "the provision for impairment of guarantee commitments and the off balance sheet business of the investment and financing services and the intermediary services in the form of credit risk" shall be taken as a guarantee undertaking business bank to undertake the credit risk, the risk assets weighted out of the table and the occupation of capital, whereas the off balance sheet financing business needs to determine whether or not the bank needs to take risks to determine whether it is necessary to take out the risk weighted assets and occupy the capital.

Therefore, we believe that the main purpose of the new guidelines is to limit the excessive growth of off balance sheet business represented by bank financing. However, judging from the specific impact, the guideline is still a framework guide. Some specific details, such as how to implement the "substance over form principle", will decide how big the supervision is. We can continue to pay attention to whether there are more rules to follow.

Under this expectation, there will be some scruples when banks conduct business, and the barbaric growth era of off balance sheet business will come to an end. The growth of off balance sheet financial management will slow down. Second, the regulatory thinking of controlling the expansion rate of bank credit in 16 years has been extended in this guideline. In the early stage, although the central bank has controlled the growth of basic currencies, the logic of "money and asset shortage" caused by the rapid expansion of banks may be affected by the increase in the monetary multiplier caused by the use of off balance sheet business. As for the extent to which financial growth will slow down, will banks be forced to sell assets to deal with them, which may depend on whether there is more and more stringent regulatory policy implementation in the late stage. We will continue to track relevant regulatory policies. However, it should be noted that even if there is little change in the substantive policy of this guideline, two points can be determined. First, the regulatory framework has been completed and there may be specific policies at any time.

The specific analysis can refer to the previous special report "what are we talking about when we talk about the new rules of MPA"?

Second, debt and commodities are rising. Debt is only a rebound after many falls.

On Wednesday, commodity prices continued to rebound as interest rates dropped sharply. Before we analyzed, in the medium to long term, there was a significant negative correlation between commodity prices and bond prices, and short-term increases could occur simultaneously.

The face has maintained a broad rebound after the rapid decline in the early stage, and there is no room for further rebound in the late stage, because at present, the factors leading to the rise in the current round of returns have not changed fundamentally: the capital side is loose because of the short-term net investment, but the cost of the open market will increase after the two trading days. If the central bank maintains the volume of the first three trading days, there will be a net return, and the capital side may be tightened. The commodities have risen considerably for two consecutive days after a slight adjustment. The US economic data released have continued to improve, the US dollar index has continued to innovate, the US bond yields have been rising, the RMB continues to depreciate, and the innovation is low. As for bond price rise, we think it is mainly money.

And from the current market sentiment, institutions are generally cautious, there has been no obvious change, relative bonds may be more optimistic about stocks and commodities, so we believe that the downward trend in interest rates is only a sharp rebound after the rebound, and continue to rebound in limited space, there is still upward pressure on the latter.

Third, treasury bond futures yield spreads are lower than spot spreads and cross breed spreads have dropped.

The rate of decline continued, the bond futures prices also fell sharply, and the decline is larger than the spot, the discount rate increased, the bond futures price rebounded significantly on Wednesday, the increase is larger than the spot, and the discount rate narrowed narrowly. At present, the yield of treasury bond futures corresponding to 5 years and 10 years is lower than that of 5bp and 7bp respectively, and the corresponding yield margin of 10-5 years is about 16bp, which is slightly lower than that of spot 10-5 year 20bp. Moreover, the spot spreads in -5 have narrowed over the past 10 years, and the corresponding price difference of -10 over the past 5 years has also dropped. For the latter, if interest rates go up again, interest spreads will expand again and the curve will be steeper. Investors will be able to carry on arbitrage more than 5 years and 10 years in space. Spot proceeds

One or two tier market: Wednesday's credit debt market was active, and the overall yield was slightly volatile.

First, the regulation of off balance sheet business is stricter and the demand for credit debt will decline or decline in the future.

On Wednesday, the CBRC consulted on the risk management of off balance sheet business of commercial banks. The guidelines extended the off balance sheet business to a more detailed classification, and established a comprehensive risk control system and framework.

(1) soliciting opinions has continued the trend of tighter supervision of off balance sheet business, controlling the excessive credit expansion of banks, and thus will have a negative impact on the issuance of financial services.

(2) even after considering the financial returns, the demand for credit debt will still decline, mainly for two reasons.

First of all, a very important reason for the current shortage of assets is that it does not need to pay the reserve fund, so it will enlarge the money derived multiplier. After the return to the table, the decrease of the derived multiplier will lead to a decline in the overall demand for the bond.

Secondly, after considering the difference between interest rate debt and credit debt capital, the bank will give priority to interest rate debt when the interest rate is low, so the proportion of credit debt will decline.

(3) strict supervision of off balance sheet business will increase the credit risk or credit debt supply pressure.

Compared with the 11 year rule, the new regulation is more stringent for the supervision of off balance sheet business. For example, the guarantee undertaking category, the investment and financing service category and the intermediary service in the off balance sheet business which actually bear credit risk, besides the provision of capital, there is also provision for impairment.

The provision for impairment reserve will directly affect the performance of banks. It is expected that banks will reduce interest in off balance sheet business such as bank acceptance, letter of guarantee and letter of credit in the future. At present, it is difficult for some enterprises to obtain bank loans. They can only survive through bills. If the total amount of future bills is reduced, it will undoubtedly accelerate the risk exposure of such enterprises with poor qualifications, and do not exclude the financing of the bond market after the turnaround fails, so as to improve the supply pressure of credit bonds.

Second, the issuance of credit bonds is more difficult at the first level, and the cancellation of the issuance will be the potential supply in the future.

The recent adjustment of the bond market has made the issuance of credit debt more difficult. The short term variety bidding is acceptable, but the issuance of long term varieties is very difficult. The coupon interest rate has increased significantly. The average debt issuance rate on Wednesday is 150bp above the end of October.

In addition, cases of cancelling or postponing issuance are also increasing. 24 cases have been postponed in November, 10 more than in October.

The issuer actively or passively chooses to cancel the postponement of issuance. On the one hand, the liquidity pressure of issuers increases. On the other hand, these postponed supply will be potential supply in the future. We believe that the short-term market adjustment will continue in the short run, and the pressure of potential supply will also help the market adjustment when the issuer is forced to bear the issuance of high interest rates.

Third, the long association procurement increased, coal prices high volatility next year, continue to benefit the performance of coal enterprises.

Coal prices continue to rise, eroding the profitability of power plants. Therefore, we see that the NDRC has promoted the production of advanced capacity, and the news of the long co operation between coal enterprises and power generation companies has been continuous. For example, on Wednesday, Shanxi coking coal group and the six iron and Steel Group of Shougang, Shougang, Angang, Baosteel, Masteel and Hualing steel signed the middle and long term contract of coking coal in 2017.

In terms of the investment strategy of credit bonds, besides the conduction of interest rate debt adjustment, credit bonds themselves also have many uncertain factors. For example, the supervision of future off balance sheet business is stricter, the demand for credit debt will decline, and the difficulty of issuing credit bonds at the first level is obviously increasing. Therefore, we still discuss investors to reduce leverage.

As the price of large coal enterprises has an important exemplary role, it can play a guiding role in price. Since mid November, the spot price of steam coal has begun to fall, but the decrease is small. At the same time, coal inventories have increased significantly compared with the beginning of the year or the middle of the year. For example, the current coal inventory in Qinhuangdao has reached the mid level of 15, and the high inventory level will also inhibit the rebound of coal prices to a certain extent.

On the whole, we believe that coal prices will remain high and volatile in the future, so that the average annual coal price next year is greater than this year. Next year, the performance improvement of coal enterprises can still be sustained.