Jiuzhou Securities: PBoC Already Hiked Rates

Jiuzhou Securities says the PBoC has already effected a rate hike.

iFeng: 九州证券:央行已经进行了实质性加息
Recently, with the frequent issuance of the CBRC, the market for regulatory concerns began to gradually increase, the bond market pessimism filled. And then the central bank monetary policy "anchor" DR007 continues to rise, and the early May capital prices remain high since April 10-year bond yields up nearly 25BP, the current 10-year bond yields have been hit in August 2015 The highest ever.

On the recent weakness in the bond market, Haiqing FICC channel that the main reasons include:

First, high-level co-ordination, "three lines will be" comprehensive and strict supervision, is the core of the bond market crash. April the CBRC regulatory documents introduced, the end of April public opinion and market sentiment has eased, that regulators will not be too strict to avoid triggering the risk of the outbreak, but since May the direction of public opinion again, Xinhua News Agency and other authoritative media position, Supervision of a comprehensive trend "to become the tone of policy.

Second, the central bank DR interest rate substantially raise interest rates, resulting in debt costs are expected to continue to rise. As the central bank monetary policy anchor DR007, since the beginning of the year has been sharply higher nearly 90BP, indicating that the "central mother" of the real tight currency has been "quietly", although the central bank recently did not adjust the OMO interest rate, but the market real transaction interest rates continue to rise, enough Indicating that the central bank monetary policy continued to tighten the attitude;

Third, the behavior of financial institutions level, the CBRC self-examination led to the normal outsourcing business is difficult to carry out . Although the pre-media coverage of large-scale redemption of large-scale outsourcing outside the exaggerated elements, but in fact the bank redemption or expired not to continue to have been quite common, outsourcing agencies continue to pressurize the debt market, which also led to this The adjustment of the cash register is higher than that of the national debt futures.

Haiqing FICC channel that need to be alert to radical lever to lead to "trampling" debt and financial market risk outbreak, while the need to guard against the risk of economic recovery, it is recommended to leverage should be "soft landing" rather than "hard landing"

First, "full-scale supervision" + money market "substantial interest rate", may lead to "trampling" debt, the extent may be even more than in December 2016, leading to similar to the 2015 stock market crash " - to the lever - ... ... "cycle, and even lead to debt issuance of corporate default tide.

Second, the strong economic recovery since 2016, but the "comprehensive and strict supervision" may lead to the recovery of the collapse, especially the large-scale cancellation of bond issuance, non-standard financing is limited, may lead to the real economy of the financing activities are significantly inhibited in the presence of local government And state-owned enterprises "soft constraints" of the case, the squeeze effect for private enterprises will be more serious.

Third, it is recommended that "deleveraging" should be "soft landing" rather than "hard landing" to develop more explicit and enforceable regulatory standards and should not require banks to "speak politics" and self Supervision, in particular, should be clear the legitimacy of normal outsourcing business, to avoid the uncertainty caused by the irrational and "trampled" debt, to prevent the "radical deleverage" caused by the outbreak of financial system risk.

First, the regulatory changes are the core variables of financial markets since April

Since March 2017 , Guo Shuqing, chairman of the CBRC soon, in the banking industry, a wave of financial supervision to strengthen the storm , the main objective is to strengthen the banking risk control, make up the regulatory short board, strengthen the financial leverage, Arbitrage "," three violations "," four improper "," ten chaos "and other documents on the banking industry, financial business, investment business, such as special rectification. China Banking Regulatory Commission frequently issued a document, and the CBRC issued a policy of policy, far beyond the market before the policy level supervision is expected, 10-year bond yields began to rise sharply in early April, the previous three weeks up nearly 25BP.

4 On May 25, the CPC Central Committee Political Bureau held a meeting , called "attach great importance to prevention and control of financial risks and strengthen supervision coordination, strengthen the real economy, financial services, and increase efforts to punish illegal violations." At the same time, regulators began to pay close attention to the impact of the redemption and other events on the bond market , the media for the trend of regulation has also changed, the market began to think that the regulatory easing, that at least regulators will not allow " "The second outbreak, which also led to 10-year bond yields have been down.

However, from the market research point of view, the Politburo stressed that after the supervision and coordination, many local banking regulatory authorities began to enter the local banks, urging commercial banks to self-examination, a direct result of many banks appear outside the expiration of non-renewal, or redemption Outside the situation.

5 On May 4, Xinhua News Agency issued a document "of the financial sector listed priorities to safeguard national financial security," reiterated the official attitude to regulation, that is, "line 3 will be fully tighter regulation." The article clearly pointed out that "at present, some areas still exist regulatory gaps, urgent need to fill the regulatory short board", "China Banking Regulatory Commission said it will comprehensively sort out all kinds of banking business regulation and regulation, as soon as possible to fill the regulatory regulations blank, fill the regulatory system short board" , As well as " to strengthen financial supervision, the departments should do both defensive responsibility, but also co-ordination , the formation of a national game" and so on.

The market is expected to change the regulatory policy is the core of China's financial market since April: (1) CBRC regulation significantly higher than expected, the stock market, bond market double play → (2) regulatory attitudes and media easing loosening, market expectations Regulatory "not so strict", the stock market, the bond market rebound → (3) regulators and media trends again more stringent, the market is expected to deteriorate significantly, stocks, bonds, goods three killed.

Second, the central mother DR weighted interest rate substantially raise interest rates, monetary tightening attitude "is not obvious but very clear"

Recently, the market rumors that the central bank will raise the operating rate of OMO, while rumors to improve MLF interest rates, the results eyebrows: Although the central bank did not adjust any interest rates, but the bond market but fell even more powerful.

We believe that the central bank's attitude, not only to see what the central mother said, but should see what the central mother did: even if the OMO interest rate is not adjusted, but the weighted rate of investment from the DR trend, the central bank has carried out a substantial rate hike.

Since 2017 , the inter-bank deposit agency 7-day repurchase rate DR007 from the beginning of the year 2.30 level, up nearly 90BP to the recent level of 3.20, the current DR rate even higher than the end of March. In the end of June not to the case, the funds have been tight to the present level, how could the market up optimistic!

We think that DR007 interest rate rise, mainly from the two aspects of the bond market have an impact: First, DR007 is the bank's capital costs, the interest rate of the substantial upward, will directly push the bank to buy government bonds cost of capital; Second, DR007 is Central bank monetary policy implementation report clearly pegged to the "anchor", with a strong monetary policy signal significance, DR007 continued to reflect the central bank tightening attitude.

First, DR007 as an inter-bank deposit institutions into the cost of capital, the sharp rise in interest rate prices shows a substantial increase in the cost of bank funds , and banks are the main buying power of bond market interest rates , the substantial increase in bank capital costs, Will significantly reduce the bank's interest rate debt demand, thus pushing up the 10-year bond yields.

Second, we have pointed out many times before, DR007 is the central bank monetary policy implementation report clearly proposed monetary policy pegged to "anchor", with a strong policy signal. Therefore, the beginning of the year DR007 interest rates continued upward, reflecting the central bank to tighten the liquidity of the currency market continuity, and DR007 interest rates significantly reflects the central bank tightening efforts. Another point of view, we can also continue to go into the DR007 interpretation, the central bank in the money market is tightening is the central bank strict regulatory will, which coincides with a line of three strict supervision "coordination."

Third, the CBRC self-examination, regulatory expectations are not clear, outsourcing "lying gun"

Recently, the CBRC strict regulatory policies continue to be introduced, as well as the local banking bureau stationed in banks to urge the bank self-examination, a direct result of outsourcing business has shrunk dramatically. Although the central bank at the beginning of the year to try to clear the legitimacy of the outsourcing, but in the absence of specific regulatory indicators in the face of self-examination, the bank insecurity, political correct consideration higher than the economic efficiency, outsourcing is not impossible, Become a problem.

Looking back before October 2016, the bond market has gone through nearly three years of the big bull market, the wheel of the bull market dominated the logic of two key points: First, the central bank monetary policy is loose , the capital rate fixed at a very low level, Investors generally adopt a long period of time, plus the lever method to carry out the telegraph operation; Second, commercial banks to take "peer debt + outsourcing" approach, first to expand the balance sheet to expand the scale, and then through the outsourcing of the way Into the bond market. Therefore, outsourcing a significant expansion of the scale + add leverage consistent policy on bond forming a huge demand, led directly to the bond market "asset shortage", the great bull market.

At present, the central bank has continuously raised the capital cost of the bond market, as well as tightening the liquidity of the money market, making the bond market in the process of continuous to the process, then the outsourcing will become the bond market a strong support force. However, the recent introduction of strict supervision and control policies of the China Banking Regulatory Commission, as well as the local banking regulatory authorities stationed in banks to urge the bank self-examination, a direct result of outsourcing business significantly shrinking .

Specifically, the recent CBRC generally introduced nine documents, of which, No. 46, the text of the "three sets of benefits", mainly on the requirements of the bank self-examination of financial funds outside the scale; 53 text proposed "four improper", requiring banks to focus on inspection The same industry business, financial management, trust business, the same will affect the size of the outsourcing; 7, proposed to make up for the regulation of short board, to strengthen the risk of off-balance sheet business, financial management, the same bad business.

Although the central bank in the "on the normative financial institutions, asset management business guidance" (the market known as the "big capital" views) recognized the legitimacy of the outsourcing, but the CBRC's self-examination is not on the legitimacy of outsourcing and scale Given a clear attitude, leading to the bank can only follow the most stringent standards - do not do outside the implementation of the commission, which led to the outsourcing market has been close to the frozen state, the trustee's debt caused by the debt adjustment pressure even more than the national debt futures, which But also this round of the bond market fell in December 2017 (when the futures fell much more than the spot) significantly different characteristics.

Fourth, "radical to leverage" may lead to "trampling debt" and the economic recovery died

At present, strict supervision and control of a comprehensive increase, there may be "trampling" the possibility of debt; the same time, "comprehensive and strict supervision" may lead to economic recovery die.

On the one hand, the central bank continued to tighten monetary liquidity, leading to rising capital costs, making the bond yields rose sharply, since the beginning of the year, the whole market R007 capital costs have been up 130BP, 10-year Treasury bonds Yield has been up 40BP. If the future central bank to further maintain a high degree of tension in the money market liquidity, then the bond market may increase the degree of selling. On the other hand, with the CBRC continue to promote self-examination and on-site inspection, will make before the huge amount of outsourcing significantly decline in the size of the substantial shrinking will directly affect the needs of the bond market, the future bond market appears to sell of a substantial increase , therefore, if the strict regulatory policies to strengthen further in the future, then the "stampede-style debt disaster," the possibility should not be overlooked.

On the impact of strict supervision on the real economy, there have been large-scale cancellation of bond issuance, non-standard financing is limited, may lead to the real economy of the financing activities are significantly inhibited, in the presence of local governments and state-owned enterprises "soft constraints" , The squeeze effect for private enterprises will be more serious. The current level of market bond issuance cancellation has become the norm, only in April on the 154 bonds canceled and postponed the issue, involving the scale reached 140.663 billion yuan, the number and scale has been the same as the first quarter of this year. It is not difficult to imagine, coupled with the supervision of non-standard "besieged", then the future scale of corporate financing will be a sharp decline. Even if some companies are still issued bonds success, but its issuance rates have been nearly doubled over the same period last year, high financing costs on the production and operation of enterprises are greatly suppressed, business operations will face greater challenges.

Therefore, both the strict supervision may lead to a substantial decline in the scale of social financing, or a substantial increase in corporate financing costs, will mean that financial weak to weak economic transmission will be inevitable, bad real economy. From the national debt futures T1706 and T1709 trend can be seen, the recent decline in T1706 much larger than T1709, reflecting the regulatory market led to the economic pessimistic expectations.

In addition, due to the financing needs of private enterprises in the whole financial are in a relatively weak position, in the local government and state-owned enterprises there are "soft constraints" situation , strict supervision of financial conditions deteriorated, the first to be hurt must be private enterprises The The degree of leverage of private enterprises is the lowest in China, but in the radical to the lever in the sand, the private enterprises should not be leveraged will be seriously damaged.

Haiqing FICC channel suggested that "deleveraging" should be "soft landing" rather than "hard landing" to develop more clear and enforceable regulatory standards and should not require banks to speak of " Self-regulation, in particular the legitimacy of the normal outsourcing business, to avoid the irrational and trampledness of debt due to uncertainty, and to prevent the outbreak of financial system risk caused by "radical deleveraging".

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