[Zhejiang Commercial Bank FICC·Credit Bond Daily] Market Sentiment Is Booming

(Source: China Merchants Bank FICC)

On the primary side, today there were 72 newly issued interbank deals, with a total issuance size of CNY 77.37B. Of this, short-term notes were CNY 34.2B, medium-term notes were CNY 34.5 billion, PPN was CNY 6.17B, and ABN was CNY 2.5B. The power grid continued to issue CNY 20 billion SCP + CNY 10 billion MTN today, and the overall issuance volume remains at a high level. All types of institutions participated actively; bank-affiliated institutions were the main bidders. Most issuances were priced at discounted valuations at the bid cut-off, and primary credit sentiment remains very hot.

On the secondary market, trading activity increased significantly versus yesterday. The degree of deviation in trades widened, and buy-side demand was active. For AA issuers, most trades were at discounted valuations of 1–2bp. Institutions continued to move down the credit curve in search of absolute returns. As the rates market warmed up, credit bonds with medium- to long tenors broadly traded with slightly lower discounted valuations, and sentiment improved. Trading maturities were also extended: today, for AA+ issuers in the 3–5 year bucket, the magnitude of discounted valuation was relatively larger, showing signs of longer duration positioning. Real estate bonds continued to see improving trading activity. Today, there were trades in Poly Development (4.6 years), CIC Jiao Tong (?), China State Construction Engineering (?), and Lianfa Group (?) among others. From institutional behavior,收券 (bond-picking) institutions are still mainly wealth management products and funds.

Market Summary

Both the equity and bond markets rebounded in tandem. The A-shares market overall saw a repair, with major broad-based index benchmarks rising across the board and trading value staying at a high level. Sector performance showed structural differentiation driven by events and policy. Liquidity conditions have remained steady and slightly loose; R001 remained stable around 1.4%. The MLF rollover window will open tomorrow, and liquidity at quarter-end is expected to be fine. Overall, the bond market traded with a generally volatile but slightly strong tone throughout the day, and active 30-year issues fell by nearly 1.5bp. Considering that bank wealth management scales typically rebound seasonally in April, and banks’ allocation demand is being released, together with increased activity from funds and other types of institutions recently, credit bonds at quarter-end will still have some support. Although, as absolute returns keep trending lower, the scope for further tightening in credit spreads is limited, quarter-end yields are not expected to change materially. With liquidity continuing to be loose, short-end certainty is higher. Watch for marginal changes in institutional behavior under the pressure of quarter-end indicators.

Market Data