Economic Observer Network reporter Cai Yuekun On the morning of April 11, 2022, the interest rates on 10-year treasury bonds in China and the United States inverted. The yield on 10-year treasury bonds in the United States rose to 2.7640%. China’s 10-year treasury bond active bonds 220003 (hereinafter referred to as "22 The yield on Treasury Bonds 03" was flat at 2.7525%. It is reported that the 10-year Treasury bond yield has inverted for the first time since 2010.
In this regard, a bond trader from a large southern bank told reporters that the short-term interest rates of China and the United States have long been inverted, and the 10-year bond only inverted during the session on April 11.
As of 16:00 pm on April 11, Wind data shows that the inversion in the 10-year treasury bond interest rates between China and the United States has narrowed. The 10-year treasury bond yield in the United States was close to 2.7610%, and the 22-coupon treasury bond 03 yield was close to 2.7450. %; China's 2-year Treasury bond yield is 2.2450%, and the U.S. two-year Treasury bond yield is 2.5300%, an inversion of 28.5BP. In addition, China's 5-year Treasury bond yield is 2.5400%, and the U.S. two-year Treasury bond yield is 2.7600%, an inversion of 22BP.
Lian Ping, chief economist and director of the Zhixin Investment Research Institute, said in an interview with reporters that generally speaking, the inversion of interest rates between China and the United States will put pressure on China's capital outflow, and will also bring pressure on the depreciation of the renminbi. . However, the factors affecting capital flows and the RMB exchange rate are relatively complex. The key depends on the extent of the impact of other factors, especially China's economic fundamentals and international balance of payments. China is a very large economy, and its operation will not be completely disrupted by external factors. The impact on the overall operation of the economy is mainly related to a series of internal factors.
Lian Ping’s analysis believes that the short-term impact of the inversion in U.S. and Chinese bond interest rates will generally not be too great, but if the inversion occurs for more than half a year, the negative impact will be relatively large. There have been inversions in Chinese and American debt before, but it was short-lived. However, the time of this inversion may be relatively longer than before.
Oriental Jincheng believes that the direct reason for the inversion of interest rates between China and the United States is that U.S. bond interest rates have risen again, catalyzed by expectations of accelerated policy tightening. The fundamental reason is the divergence in the pace of economic recovery and monetary policies of China and the United States after the epidemic. Since the epidemic, there have been big differences between China and the United States in terms of the pace of economic recovery and the trend of inflation and , which has led to a divergence in the monetary policies of the two countries, which is the so-called "loose internally and tight externally." Against this background, the spread of interest rates between China and the United States continues to narrow and even invert, which is an inevitable trend to a certain extent. Looking at the follow-up trend, Oriental Jincheng said that this round of Sino-US interest rate inversion may be a short- to medium-term phenomenon and is not sustainable, and is expected to "return to normal" in the second half of the year.
Influenced by this, the above-mentioned bond trader told reporters that the current main concern of the market is the resonance of Sino-US interest rates. However, the current monetary policies of China and the United States are misaligned, the RMB exchange rate is in an appreciation range relative to the US dollar, and the exchange rate level has a cushion. These Although the interest rates between China and the United States are inverted, it has little impact on ChinaBond. Therefore, it has little impact on trading for the time being, and the sentiment is slightly bearish, but it is also within market expectations.
Goldman Sachs China Chief Liu Chenjie said in an interview with reporters that the interest rate difference between China and the United States has a certain positive effect on short-term capital flows, but the difference in fundamental growth rates has a greater impact, so it is not necessarily concluded that interest rates between China and the United States will occur. An inversion will inevitably lead to short-term capital outflows. Looking forward, the Federal Reserve's tightening of monetary policy is in its early stages, the U.S. ten-year Treasury yield may still have room, and the interest rate differential between China and the U.S. may still be under pressure. From the perspective of my country's financial market, a strong actual economy is fundamental to cultivating competitive listed companies. Changes in overseas interest rates are temporary phenomena and may have a short-term impact, but they are not a decisive force in the medium and long term.
On April 11, the Shanghai and Shenzhen stock indexes fell across the board in early trading, and the weakness was difficult to change in the afternoon. The GEM index hit a new low since July 2020. As of the close, the Shanghai Composite Index closed at 3167.13 points, down 2.61%; the GEM Index was at 2462.04 points, down 4.20%; the Shenzhen Stock Exchange Component Index was at 11520.21 points, down 3.67%.
This time, the 10-year treasury bond interest rates in China and the United States are approaching an inversion that has not been seen for many years. How it will affect the domestic stock market, bond market, and foreign exchange market has become a concern for investors.
The reason behind it: related to the Federal Reserve's interest rate hike etc.
The above-mentioned bond traders said that the inversion of Sino-US bond interest rates is closely related to the Sino-US economic cycle, monetary policy misalignment, etc. The United States is now in the post-epidemic economic recovery stage, non-farm employment data has also improved significantly, and inflationary pressure caused by the supply chain is rising. In terms of monetary policy, the Federal Reserve has continued to raise interest rates, and the balance sheet reduction is about to begin.
In contrast, the trader said, China has already experienced the normalization of monetary policy and economic recovery after the epidemic. Last year, the economy declined again, inflationary pressure was under control, industrial products were under inflationary pressure, and consumer goods inflationary pressure rebounded slightly, mainly due to supply chain disruptions caused by the epidemic. Monetary policy as a whole has been loosened since July last year and has now come to an end. On the whole, it is still not a flood, and it is timely, steady, reasonable and appropriate. Because demand in the real economy is weak and liquidity is generally piling up in the financial market, this is the reason why the central bank may not cut interest rates again.
Regarding the inversion of interest rates between China and the United States, CICC analysis said that on the one hand, U.S. growth is still resilient and the Fed's tightening expectations have become the main theme, causing the 10-year U.S. Treasury bond to rise rapidly under the guidance of real interest rates. On the other hand, China's growth pressure has increased but policy easing has not yet taken action, so interest rates have weakened but not changed much. If the cycle is lengthened, the reverse direction of the Sino-US cycle, that is, the narrowing of the interest rate gap between China and the United States, will begin in early 2021. Looking at the deeper reasons, in addition to " first in first out", it is also related to the policy strength and direction of efforts in response to the epidemic between China and the United States, as well as the differences in macro leverage.
Haitong Macroeconomics Liang Zhonghua said that generally speaking, interest rates are an important reflection of the macroeconomic fundamentals of an economy. Short-term bond interest rates are largely affected by central bank policy interest rates or policy interest rate expectations. For example, the correlation between the 1-2-year U.S. bond interest rate and the U.S. federal funds rate and interest rate hike expectations is very high. The recent sharp rise in U.S. short-term bond interest rates is mainly the result of the market's increasing expectations for the Federal Reserve to raise interest rates. Expectations for interest rate hikes throughout this year have increased from 7-8 times to nearly 10 times in a short period of time.
Liang Zhonghua analyzed that the interest rate of medium and long-term bonds is largely affected by the medium- and long-term actual growth of the economy, inflation, and monetary policy trends, and the medium- and long-term monetary policy trends depend on the medium- and long-term economy and inflation, so in the final analysis, Interest rates are a concentrated expression of economic fundamentals. The inversion of interest rate differentials between China and the United States reflects the divergence in economic fundamentals. Driven by economic recovery, interest rate hikes and balance sheet reduction, nominal interest rates in the United States of all maturities have risen sharply, but they are still low and there is still room for further upside.
Compared with U.S. bonds, regarding the interest rate trend of ChinaBond, Liang Zhonghua said that until the new wave of epidemic has not passed, my country's interest rates will most likely remain low and fluctuate, but if the epidemic passes, interest rates may return to the upward channel. When the impact of the epidemic on the economy will pass, we need to continue to observe and track it. And if the interest rates of various U.S. bond maturities continue to rise, then there is a high probability that interest rates of various maturities will invert. "Of course, I would like to emphasize that the inversion of interest rates is more of a short- to medium-term phenomenon. As long as we do the right things, we are confident in the long-term growth potential of the Chinese economy."
There may be some disturbance to the bond market
Review of the previous inversion of interest rates in China and the United States According to the statistics of Guohai Securities research report, since 2002, the interest rate gap between China and the United States has significantly narrowed or even inverted four times, which occurred from the first quarter of 2002 to the second quarter of 2004, and from the first quarter of 2005 to 2007. The third quarter of 2008, the fourth quarter of 2008 to the second quarter of 2010, and the fourth quarter of 2018 to the first quarter of 2019.
Guohai Securities said that because the causes of the previous three inversions in Sino-US interest rates were quite different from the current ones, and at that time, China's financial market was low in openness and its linkage with overseas was weak, so only 2018 has certain reference significance. From the fourth quarter of 2018 to the first quarter of 2019, the two-year interest rate differential between China and the United States inverted for three months, and the interest rate difference between China and the United States in the ten-year period was significantly far away from the comfortable range of 80-100 BP.The out-of-sync policy between China and the United States is the key to the rapid decline in interest rate differentials between the two countries at various maturities. The periodic stabilization of China’s economy and the shift from to dove in U.S. monetary policy are the main reasons for the expansion of interest rate differentials between China and the United States again in 2019. .
Will the narrowing of the interest rate gap between China and the United States have an impact on my country's monetary policy? Haitong Macroeconomics said that the central bank can indeed "put me first." On the one hand, the current RMB exchange rate is at a very strong level, and a certain degree of depreciation is acceptable; on the other hand, capital management is more stringent and standardized, which also provides guarantee for the independence of domestic monetary policy. So it's not because the Fed wants to raise interest rates that we don't cut interest rates, but because interest rate cuts themselves may not be the focus of this year's monetary policy.
What impact may the U.S. bond interest rate inversion in this round have on the capital market?
The above-mentioned bond traders told reporters that the Federal Reserve will start the process of raising interest rates and shrinking its balance sheet starting this year, and A shares will continue to be under pressure. The interest rate gap between China and the United States may trigger short-term capital outflows. If economic fundamentals are also in a state of long-term repair, ChinaBond may also face a decline.
As for the stock market, Guohai Securities analyzed that although the Fed's interest rate hike cycle has had a relatively large impact on emerging economies, the inversion of the interest rate differential between China and the United States does not mean that the market will face a sharp correction again. Similar to the fourth quarter of 2018, the current A-share market is also in the bottoming period from the policy bottom to the market bottom. Although the return of the broad-based index during this period is still likely to be negative, and is accompanied by the emergence of strong industries making up for the decline, but The stage of the largest market decline has passed, and structural opportunities have begun to gradually emerge. The sectors with clear policy expectations and the most certain performance are the main lines leading the rise in this period.
As far as the capital market is concerned, Haitong Macroeconomics said that the inversion of interest rates between China and the United States may have certain disturbances in the bond market, but the impact on equity assets is relatively limited. For my country's equity assets, the key is to look at its own policies. Judging from past experience, my country's core asset prices and U.S. dollar liquidity have a certain correlation, but there were obvious deviations in 2018 and the second half of last year. Especially since the second half of last year, when the real interest rate of U.S. debt has not changed much, assets such as education, medical care, Internet, and consumption with relatively high proportions of foreign capital allocation have all seen very large adjustments. In fact, a certain amount of investment has been released in advance. risks of. In the future, domestic asset prices will mainly depend on our own policies.
Regarding the impact on the foreign exchange market, Everbright Securities today’s research report stated that in this round of the Fed’s monetary tightening cycle, the pressure on capital outflows under the current account may still be weaker than under the capital account, considering that the actual interest rate differential between China and the United States is still at a high level, and The domestic stock market has undergone in-depth adjustments, and the pressure on capital outflows under the capital account will be significantly less than in 2015-2016. Therefore, there is a high probability that the RMB exchange rate will continue to fluctuate in both directions during the year, but the volatility will increase, and the central parity rate of the US dollar against the RMB will fluctuate between 6.3-6.8.
In terms of exchange rates, Oriental Jincheng believes that the depreciation pressure brought about by the narrowing of interest rates between China and the United States is limited. Data shows that since the "811 Exchange Reform" in 2015, the correlation between changes in Sino-US interest rates and fluctuations in the RMB exchange rate against the US dollar has been very low - the correlation coefficient of and is only 0.1, which is far below the statistically significant level. This means that the RMB exchange rate is driven by multiple factors, among which my country's export situation and Sino-US relations are more influential. Taking a step back, even if the inversion of the interest rate differential between China and the United States will create periodic depreciation pressure on the RMB exchange rate against the US dollar, this pressure will be relatively limited; when necessary, regulators have sufficient policy tools to regulate, including restarting countercyclical adjustment factors, We will strengthen macro-prudential supervision of cross-border capital flows and other measures. We judge that as long as the depreciation of the RMB against the US dollar is controlled at around 5% this year, domestic monetary policy will have sufficient conditions to "focus on me."
