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    The popularity of the national debt bull market cycle is not over yet?

    2019-02-11 09:26:24

    Futures dailyNiu Qiulle

    1. The interest rate down cycle is still not over and is expected to continue into the middle of 2019.

    The study of the national debt price or the interest rate cycle is basically a study of the economic cycle. The interest rate cycle is closely related to the economic cycle. The economic cycle determines the interest rate cycle and is ahead of the interest rate cycle, but the interest rate affects the cost and return of the whole society. The way to counteract the economic cycle. Therefore, the overall economic downturn - the decline in financing costs (low interest rates) - (government, enterprises, residents) plus leverage - economic recovery - interest rates up - (government, enterprises, residents) down leverage - the economic cycle of the cycle. The economic cycle has different manifestations, and a large cycle is composed of several medium-sized cycles and many small cycles. For example, a round of Kangbo cycle consists of 5-6 Zhugegra cycle, and each Jugrah cycle consists of 3 rounds of Chichen cycle. Therefore, the short-term period we generally observe is often expressed as a cycle of about 3 years. Take the bond market as an example. At present, the domestic interest rate cycle is at the beginning of the fourth round of the cycle since 2008. The first three rounds of interest rate cycles are from 2008 to the end of 2011, from 2012 to the beginning of 2014, and from the beginning of 2014 to the end of 2017. It lasts for about 3 years. Summarizing the interest rate trend in the past ten years, we find that the economic cycle and the leverage cycle are closely related to the interest rate cycle. Since 2018, the active replenishment cycle has ended, domestic credit risks have been frequent, economic downward pressures have risen sharply, fiscal, monetary and financial regulatory policies have turned, and domestic interest rates have started a new round of downturn, which is expected to remain in the first half of 2019. In the process of bottoming out.

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Treasury yields are in the fourth round of the downturn in 2008

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    2018 treasury bond yield fluctuations

    Second, the domestic economy continues to bottom out, driving the rate of return to a lower level

    Macroeconomic fundamentals or market expectations of future economic trends are fundamental factors in determining the price of Treasury futures. In 2018, the yield of government bonds continued to fall, and the futures prices continued to rise. The fundamental reason was that the downward pressure on the domestic economy continued to increase, the global trade environment deteriorated, the domestic fiscal and monetary policies were relaxed, and the overall rate of return fell, thus forming a sustained support for the government bond futures.

    In 2019, the domestic economy will continue to bottom out. Among the main drivers of the economy, local government investment and real estate investment are constrained by financing pressures, foreign trade uncertainty is still large, and consumption is showing weak growth. Under the dual influence of the base effect and the inventory cycle, the domestic economy showed a gradual decline. The internal and external uncertainties have forced the policy to turn. The domestic fiscal, monetary and financial regulatory policies have been relaxed since the second half of 2018, which is conducive to hedging the downward pressure of the staged economy.

    At the end of 2018, the Central Economic Work Conference further clarified that the current economic operation is stable and volatile, the external environment is complex and severe, and the economy is facing downward pressure. In this regard, in 2019, the active fiscal policy should be "strengthen and increase efficiency." However, the effect of domestic policies has a certain time lag. In 2019, the downward pressure on the global economy has increased, and the international trade environment still faces greater uncertainty. The domestic economic down cycle is still not over. We expect that the domestic economy will be further downgraded in 2018 compared with 2018. Under the policy support, the domestic economic low will appear in the middle of the year, and the overall performance will be low and high. The annual economic growth rate is expected to be around 6.5%.

    Recent macroeconomic data shows that the domestic economy has entered an accelerated bottoming stage. Among them, the official manufacturing PMI announced in early January was 49.4, which fell into the contraction zone for the first time since August 2016. The final value of the private (Financial) manufacturing PMI fell to 49.7, the lowest in 19 months. As the leading index of the manufacturing industry and the economic vane, the official and private manufacturing PMI data both fell below the 50% dry and demarcated line, indicating that the staged domestic economy is still facing greater downward pressure. A weaker economy will drive the market's yield level to continue to fall, thus supporting the treasury bond futures price to continue the bull market process in the medium term.

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Economic downturn leads to lower yields

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Foreign trade has gradually declined

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Financing constrained investment growth rate

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Traditional consumption is insufficient to upgrade

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Official and private manufacturing PMI both fell below the 50% dry and demarcated line

    In 2018, domestic prices were generally stable. The specific performance was that the high prices of industrial products fell back and the prices of consumer goods rebounded moderately. The PPI-CPI scissors gap continued to converge, and the growth rate of corporate profits declined. In the medium and long term, fundamental conditions such as the monetary and financial environment and consumer demand do not support a sharp rise in inflation, especially core inflation will remain stable. In 2019, the PPI continued to be affected by the fall in the prices of production materials. Under the influence of sustained economic pressure, slowing of domestic and external demand, and weakening support of prices on the supply side, it is difficult to see a significant increase in PPI growth in the long run. Affected by factors such as falling energy prices, short-term PPI is still likely to fall further. Excluding the above uncertainty, consumer prices will continue to rise moderately, inflationary pressures are still within the controllable range, and staged nature will not form a clear constraint on monetary policy. From the comparison of CPI and government bond yields in recent years, the negative correlation between the two is gradually weakening after 2008, and the linkage between the yield of government bonds and economic growth is increasing. As long as there is no malignant inflation or deflation on the inflation level, the general impact on the rate of return is limited.

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Correlation between CPI and Treasury yield

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Price-to-cyclic ratio

    Third, the policy is moving towards an active monetary policy

    After the strong regulatory policy since 2017 and the new regulations for large capital management in early 2018, the off-balance sheet business of the bank has shrunk rapidly, the growth rate of social financing has continued to decline, corporate financing has become increasingly difficult, and the capital chain has become increasingly tense. Financing difficulties and rising financing costs led to frequent domestic credit risks in the first half of 2018, and formed obvious conductivity and proliferation, which seriously affected the stability of the domestic financial market, thus forcing a clear shift in domestic policies. Specifically, from January to November 2018, the total amount of social financing was 17.7 trillion, a year-on-year increase of 3.14 trillion. The year-on-year decline in social financing was mainly affected by the significant decrease in off-balance sheet financing. Although the new RMB loans in January-November reached 14.7 trillion, an increase of 1.47 trillion year-on-year, the new off-balance sheet financing decreased by 2.76 trillion yuan, a year-on-year decline. It is 5.98 trillion. At present, most of the off-balance sheet financing is difficult to transfer to the table. The decline outside the table is far greater than the increase in the table, which is the main reason for the continued drag on the growth rate of the social welfare.

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Deposit reserve ratio still has room for downward adjustment

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    The degree of capitalization is further reduced

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Social year-on-year growth rate fell sharply

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    It is difficult to transfer to the table outside the table is the main reason for the decline in social growth

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Currency interest rates will run long under the corridor

    In order to alleviate the current credit crisis, reduce corporate financing costs. The central bank has made efforts from the total amount and targeting policies. In terms of total policy, the central bank has been downgraded four times in a row since 2018, and the amount of funds released has been increasing. In terms of targeting policies, the central bank also provided policy support for issues such as credit bonds and SME financing. At the beginning of January 2019, the central bank announced that since 2019, it has adjusted the assessment criteria for inclusive financial services for small and micro enterprises by “single household credit of less than 5 million yuan” to “single household credit of less than 10 million yuan”. It will help to expand the coverage of inclusive preferential policies for inclusive finance, and guide financial institutions to better meet the loan needs of small and micro enterprises, so that more small and micro enterprises will benefit. We believe that in 2019, China will continue to reduce the cost of private enterprises through monetary policy fund guidance and fiscal policy tax reduction.

    In 2019, the degree of easing of monetary policy will be improved. Both quantitative tools and price-based instruments will be candidates. Deposit reserve funds are expected to continue to be lowered to hedge against the decline in foreign exchange holdings. It is expected that the probability of the central bank lowering the RRR again before the Spring Festival is expected. At the same time, if the economic downturn exceeds expectations in the first and second quarters, the central bank may use price-based tools to reduce the cost of financing the real economy. We expect that in 2019, the domestic market will continue to be downgraded 2-3 times, and the benchmark interest rate will also be reduced by 1-2 times. Policy easing is conducive to further decline in the level of market yields, and thus the price of future government bonds.

    Fourth, the risk aversion is rising, interest rate bonds are sought after by the market

    In 2018, the yield curve of the national debt market climbed steeply, and the shape of the yield curve returned to normal. With the economic cyclical decline, safe-haven assets in large-scale assets are sought after by the market, and the benchmark interest rate provided by the national debt market is still in the downward process. It is expected that in 2019, in order to further develop the effect of stable infrastructure growth, while blocking the financing “back door” of urban investment bonds and local government financing platforms, it will continue to increase the “opening the front door”, and the scale of local government bond issuance will continue. Improvement, PPP projects are expected to be heavy again after standardization. In early 2019, the Standing Committee of the National People's Congress also officially authorized the State Council to issue a new debt limit of 1.39 trillion yuan in local government in 2019, so that local governments can raise funds for infrastructure investment through debt issuance at the beginning of the year. With the support of policies, the peak period of some bond issuance may have a certain crowding out effect on some of the demand in the national debt market.

    From the perspective of hedging, with the revaluation of the global economic growth forecast for 2019 in the market, the market generally believes that global economic growth will face a slowdown in 2019, and monetary policy in the global market is further squeezed from tight space. The pessimism about global demand has led to the recent increase in risky asset volatility, and international risk aversion has surged. In the allocation of large-scale assets, safe-haven assets such as precious metals and government bonds have been further sought after by the market. We expect that this seesaw effect will continue to exist in the first half of 2019, and support the price of safe-haven assets such as treasury bonds.

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    The maturity structure of government bond yields is steeply shifted downward

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    International risk aversion is still high

    V. The global economic growth rate has dropped.

    In the gradual opening up of the external environment, the domestic economy and policy are bound to be affected by the global economic and monetary policies, which in turn affects the performance of domestic financial assets. In 2018, the global economy moved from a coherent recovery to a divergence. The US economy continued to improve, the European economy slowed down, and developing countries fell significantly. Since the end of 15th, the Fed has raised interest rates nine times in a row. The cumulative impact of the Fed’s continuous interest rate hike and contraction is evident in 2018. In order to stabilize the currency value of emerging market countries, in addition to restrictions on capital projects, passive interest rate hikes will have a greater negative impact on the economy. In the context of the global currency ebb, the domestic policy loosening was constrained. In 2018, the RMB depreciated against the US dollar to around 7. In order to maintain the stability of the currency, the central bank adjusted the foreign exchange risk reserve ratio of the forward sales business from 0 to 20%. And restart the countercyclic factor. Although the Sino-US monetary policy is facing decoupling, the spread of China-US bond spreads has been upside down in the low-term period, and the spreads in the high-end period have also clearly converged. However, it is undeniable that capital outflows and depreciation pressures also effectively limit the space for domestic monetary easing. The “impossible triangle” of capital flows, exchange rate stability and monetary policy independence are mutually constrained. Even if there is huge foreign exchange reserves backed up, The loose space of domestic monetary policy in 2018 continues to be constrained by foreign markets.

    We expect that the downward pressure on the global economy will increase in 2019, the degree of economic differentiation is expected to be alleviated, and the pressure on monetary policy will be eased. In the United States, after the mid-term elections, the two parties held one hospital, the difficulty of promoting Trump policy was promoted, the marginal diminishing effect of tax cuts on the economy was diminishing, the endogenous growth of the economy was weakened, and the interest rate cycle entered the final stage of the second half. The US dollar strong cycle is expected to gradually End. As the market's expectations for a slowdown in US economic growth heat up, the 10-year bull market cycle in the US stock market ended, international crude oil prices fell sharply, the US dollar index fell at a high level, and safe-haven assets were sought after by the market. At present, emerging market countries are in the process of leverage clearing, and the negative impact on the economy will continue. For the domestic market, the pressure of RMB depreciation is declining, which is conducive to enhancing the independence of domestic monetary policy. Under the background of the gradual decoupling of interest rates between China and the United States, the central bank’s monetary policy is not ruled out, that is, the Fed’s interest rate hikes and the Chinese central bank Reduce the rate and cut interest rates. At the end of 2018, the central bank set a medium-term lending facility (TMLF), which provides long-term stable funding sources for financial institutions' growth of small and micro enterprises and private enterprises. The medium-term loan lending funds can be used for three years, and the operating rate is 15 basis points higher than the medium-term loan convenience (MLF) interest rate. In addition, it can provide a relatively stable long-term funding source for large banks, and also achieves the purpose of partial disguised interest rate cuts. .

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    Sino-US interest rate is facing decoupling

    6. Technical analysis of futures prices

     The popularity is not diminished, and the national debt bull market cycle is not over yet?

    10-year government bond futures trend

    In 2018, the national debt futures showed an overall upward trend. Although there was a large decline in the period from August to October, the round of adjustments stabilized near the 0.618 position of the year and returned to the upward channel. Prices have continued to hit a new high in this round. Overall, the current treasury bond futures are still in a trending upward trend on the technical level. The futures disk price has broken through the low-range wide oscillation range formed since the end of 2016. If it can stand firm, the treasury bond futures will open a new round again. Upside space. Based on the above analysis, we judge that the downward pressure on the domestic economy is still relatively large in 2019, and the low point of economic operation appears near the middle of the year, and then gradually rises. The policy layer fabrics will maintain a relatively loose pattern. As the global economy weakens, the pressure on monetary policy will be reduced. In 2019, there are 2-3 times of RRR cuts and 1-2 times of interest rate cuts in China. The fundamentals continue to support government bonds. Futures price.

    In terms of market, we judge that the upward cycle of the current round of treasury bond futures formed since the beginning of 2018 is still not over. With the fundamentals, we expect the price of treasury bonds futures in the first half of 2019 to gradually oscillate and hit a high point during the year. The 10-year treasury bond futures price is expected to be around 100 yuan, the 5-year price high is expected to be around 101 yuan, and the 2-year variety is around 102 yuan. The second-half treasury futures will enter a high-level wide-ranging period.

    Seven, operational recommendations

    Looking forward to the treasury bond futures market, first of all, on the fundamentals, the official and private manufacturing PMI data both fell below the 50% dry and demarcated line, the domestic economy entered an accelerated bottoming stage, and the weaker economy will drive the market yield level to continue to fall, thus supporting the national debt. Futures prices continue the bull market process in the medium term. In terms of prices, the fundamental conditions such as the monetary and financial environment and consumer demand do not support a sharp rise in inflation. In particular, core inflation will remain stable, and even deflation risks will not be ruled out. Prices will not form a constraint on monetary policy, and will also drive social returns. The level drops. The policy is expected to be further relaxed. Given the current slowdown in domestic growth, lower corporate profit levels, higher financing costs and frequent credit risks, fiscal, monetary and financial regulatory policies will gradually relax, and the financial sector will continue to increase. The strength of the infrastructure to complement the short board and the space for tax reduction. Both quantitative and price-based instruments at the monetary level will be an alternative. It is expected that the central bank will have a higher probability of lowering the RRR before the Spring Festival. If the economic downturn exceeds expectations, the central bank may use price-based instruments to reduce the financing costs of the real economy. On the external front, the downward pressure on the global economy will increase in 2019, the degree of economic differentiation is expected to be alleviated, and the pressure on monetary policy will be eased. In particular, after the mid-term elections in the United States, the two parties have implemented one hospital. The difficulty of promoting Trump policy is increasing. The tax reduction has a marginal diminishing effect on economic stimulus, and the endogenous growth of the economy is weakening. The interest rate cycle enters the final stage of the second half, and the US dollar strong cycle is expected to gradually End. From the perspective of hedging, as the market's pessimistic expectations for global demand have led to the recent volatility of risky assets, international risk aversion has surged. In the allocation of large-scale assets, safe-haven assets such as precious metals and government bonds have been further sought after by the market. We expect that this seesaw effect will continue to exist in the first half of 2019, and support the price of safe-haven assets such as treasury bonds.

    Overall, we believe that the upward cycle of this round of treasury bond futures formed since the beginning of 2018 has not yet ended. Under the fundamentals, it is expected that the price of treasury bonds will gradually oscillate in the first half of 2019, and hit a high point during the year. The 10-year treasury bond futures price is expected to be around 100 yuan, the 5-year price high is expected to be around 101 yuan, and the 2-year variety is around 102 yuan. The second-half treasury futures will enter a high-level wide-ranging period. (Author: Founder Medium Futures)

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