海通证券股份有限公司 Jiang Jinxiang


　　Interest rate bonds continue to move in a narrow range: As the high-profile central economic work meeting has set a key tone within the previous framework, we believe that there would be limited trading opportunities for interest rate bonds whose holding period yields will be inferior to those of credit bonds, given the expectations of a slight rebound of economy and the overall moderate, controllable inflation. The expectation of an around 3% inflation in the next year has been reflected in current yields of 10-year government bonds at 3.5-3.6%, and that of policy financial bonds at 4.2-4.3%, while both are expected to continue to move range-bound within a range of 20 bps. Should anything happen as a surprise, for instance, the economy continues to rely upon fixed assets investment, or the inflation goes up higher than expected, the interest rate bonds would bear the blunt of impact. Therefore, we recommend shorten the interest rate bond duration to 3-5 years, as they now only have the value in terms of allocation and liquidity management.

　　The total social financing is still a highlight: 1) the off-balance-sheet regulation continues to ease as expected, while the undiscounted entrusted loans and trusts are still growing in size; 2) the direct financing through bonds is expanding, thanks to the regulators’ strong support to develop the bond market, as well as the good performance of the bond market this year. We maintain our view on the total social financing: it will play a more important role in helping the economic recovery, provided the central bank holds on to its relaxed regulation of the off-balance-sheet financing; however, we still need to wait and see the result.

　　The M1/M2 spread widened once again: The widened spread this time is attributable to the quick drop of M1 without any significant growth of M2, rather than being caused by any quick growth of M2. It implies on the one hand that the economic activities are still lingering around the trough, and on the other hand, the “moderate” fine-tuning method has been maintained in terms of both the key tone and actual actions on the policy front, while neither the central bank nor China Banking Regulation Commission is ready to boost the economy through measures of anti-cyclical regulation. Given the continuous progress in interest rates liberation, the spread is unlikely to reverse quickly to work against the bond market; however, as the bottom also becomes less likely to move downward further in its trend, the favorable impact on the bond market is progressively diminishing.

　　The credit gives a lukewarm support to the economy: 1) The growth in incremental mid-to-long term loans slowed markedly to RMB 148.4 billion, from the level of around RMB 290 billion in the preceding three months, while the incremental mid-to-long term loans also represent a lower percentage in the total incremental loans, primarily caused by a drop in incremental loans of non-financial firms; 2) the short term loans account for as high as 75% in the total, and those of non-financial firms account for 51%, as the credit demand is primarily driven by cash flow replenishment.

　　The opinions of institutions are still mixed about short term financing allocation: For the third month in a row, the commercial banks have seen their short term financing bonds under custody dropping while the funds have theirs increasing, and the insurers and securities houses have kept a stable allocation.