Guosheng Securities: Recent bond interest rates have significantly adjusted. How to view and how to deal with it?

Guosheng Securities released a research report saying that in recent times, interbank market liquidity has continued to tighten, leading to adjustments in the bond market. The fundamental reason is that the central bank's liquidity injection has become tighter, mainly due to the central bank's concerns about the rapid decline in interest rates in this round, hoping to "be ahead of the curve" to avoid a "stampede-style" adjustment. Looking ahead, it is believed that monetary easing is still the general direction, and the reduction in required reserve ratio and interest rates will only be delayed and not absent. In the short term, the probability of a required reserve ratio cut is greater than that of an interest rate cut. For the bond market, the pressure for further adjustments may be limited, and if bond rates are further adjusted upwards, it is suggested to pay attention to possible investment opportunities. Event: In recent times, funding in the bond market has continued to tighten, with the DR007 central level rising by about 20 basis points to around 2% as of February 24, significantly higher than the same period OMO rate. The 1-year treasury bond yield rose by 18 basis points to around 1.5%, and the 10-year treasury bond yield rose by 13 basis points to 1.76% from the previous period. 1. In the recent perspective, interbank market liquidity has continued to tighten, with the DR007 central level rising by about 20 basis points to around 2%, causing short-term interest rate adjustments that have transmitted to the long end, flattening the curve with some inverted terms. 2. Objectively speaking, the fundamental reason for this round of bond rate adjustments is that the central bank's liquidity injection has tightened, with the triggering factor being banks lacking liabilities after the deposit self-discipline agreement, combined with improvements in credit lending. 3. Essentially, the recent cautious operations of the central bank are mainly due to concerns about the rapid decline in interest rates since the beginning of the year and the many expectations of interest rate cuts. They hope to "be ahead of the curve" to avoid subsequent "stampede-style" adjustments, and there may also be considerations for anti-money laundering and stability of the exchange rate. 4. Looking ahead, it is believed that monetary easing is still the general direction, and the reduction of the required reserve ratio and interest rates will only be delayed and not absent. Given the front-loading of fiscal policies and factors such as high funding rates suppressing credit expansion, the probability of a required reserve ratio cut in the short term is greater than that of an interest rate cut. Whether short-term liquidity can be substantially eased amidst reduced interbank deposits and improved credit demand mainly depends on the central bank's operations. 5. In terms of assets, for the bond market, the risk of further tightening of short-term liquidity is relatively controllable. In addition, stable growth, debt issuance, and debt reduction in the country this year objectively require a low interest rate environment, so the pressure for further bond adjustments may be limited; as for the equity market, the sustainability of the current technology theme is crucial in the short term. Risk warning: Economic downturn exceeding expectations, external environment changes beyond expectations, policy changes exceeding expectations.