Zhongtai: The bond market is showing a structural correction trend, and may be facing weak supply and weak demand.

According to a research report released by Zhongtai, the primary theme of the recent bond market recovery is chip trading. As time goes on, the trading of loose monetary events and TACO (targeted amortization class) trading is getting closer to the "end date option" exercise point, making the cost-effectiveness of further trading lower. In the process of possible adjustments in redemption rates and the decline in bond profitability, various institutions are inevitably looking ahead to the second year in the fourth quarter, but this year may see the most cautious average market expectation in recent years, affecting the intensity of bond allocation in the fourth quarter. The bond market may see weak supply and weak demand at the supply and demand level. Currently, the bank believes that various institutions are facing a situation where residents' risk preferences are increasing, leading to a "reconfiguration" towards low-risk, long-term instruments. Additionally, from the second half of this year, the correlation between the technology bull market and the bond bull market is becoming clearer. The main points of Zhongtai are as follows: In recent times, the bond market has seen a structural rally, but in the following days, this structural repair rally has become elusive. The bank believes there is a need to discuss several main themes and issues that the market needs to pay attention to. What is the primary theme of the recent bond market recovery? - Chip trading. Essentially, after various bond spreads rapidly widened, it is the week-level "chip trading" after the dispersion of chips, with the overall profitability of the market not strong, and time certainty > spatial certainty. With the passage of time, loose monetary event trading and TACO trading are getting closer to the "end date option" exercise point, making the cost-effectiveness of further trading lower. How to understand the current economic growth rate and economic structure? Going back to June of this year, the two main themes in the bond market for long positions were: the momentum of growth is decreasing month by month, and traditional incremental policies are limited. However, if we go back three years, imagine an economic growth structure: 1) local governments lack debt expansion and reinvestment in infrastructure; 2) real estate's contribution to the economy is decreasing year by year; 3) trade frictions have not changed the contribution of trade to GDP; 4) ultimately, the economic growth rate is around 5%. This kind of economic model may be a certain degree of "high-quality development", and cannot be defined as traditional weakness. How does the bond market institution pricing power move? After the holiday period's structural rally, especially under TACO trading, the participation volume of public offerings has decreased significantly compared to April of this year, with more participation from securities firms. The bank speculates that neutral strategies may still dominate, with fewer one-way, high-stake trades. Overall, although the spread has moved quickly and sharply in the short term, giving opportunities for narrow spread trading, the medium-term trend has not yet turned. In the process of possible adjustments in redemption rates and the decline in bond profitability, various institutions are inevitably looking ahead to the second year in the fourth quarter, but this year may see the most cautious average market expectation in recent years, affecting the intensity of bond allocation in the fourth quarter. At the supply and demand level of the bond market: there may be weak supply and weak demand. Currently, the bank believes that various institutions are facing a situation where residents' risk preferences are increasing, leading to a "reconfiguration" towards low-risk, long-term instruments. From a seasonal perspective of supply and demand in the bond market, there are some certainty and some uncertainty. The certainty is that there is less supply of interest rate bonds in the fourth quarter; the uncertainty is the strength of the possible opening trading, which has been relatively small in the past. How to view the relationship between technology and bonds? If we abstract the bond market as a single factor, that is, a market driven by loose liquidity, then the relationship between the bond market and technology is that of separate bull markets driven by ample liquidity. However, in reality, we will find two changes this year: 1) the marginal impact of loose liquidity is weakening, and institutional rebalancing behavior is dominating the bond market, leading to a situation where the short end remains unchanged - a "steep bearish" situation; 2) the market value of the technology sector surpasses that of the financial sector this year, and a truly AI-driven performance-driven sector has emerged, rather than the previously liquidity-driven "small to mid-cap" technology sector. Additionally, the impact of the real estate sector on A shares has significantly weakened. While in the first half of the year, the market's internal driving force towards the technology sector was unclear, in the second half of this year, the correlation between the technology bull market and the bond bull market has become increasingly clear. Risk warning: Unexpected tightening of monetary policy, large-scale return of wealth management products causing market volatility, occurrence of credit risk events, inaccurate statistical caliber, and untimely updating of research report information.