How much investment value is 2.8% of ten-year treasury bonds

  The yield to maturity of 10-year treasury bonds has soared in recent days, reaching a position of 2.85% at one time, but after reaching 2.85%, it peaked and fell, and finally closed below 2.8%.
  This shows that some investors have begun to believe that more than 2.8% of the 10-year treasury bonds have investment value, and the fundamentals and the repricing of the central bank’s monetary policy have been well digested.
  But is this location actually safe? I think it can be viewed from two aspects.
  Asset prices fully reflect the positive
  first, each round will go through ups and downs in fact, such a process: In the positive stimulus, heady, asset prices fully reflect positive.
  When the market has almost set the price of the favorable stimulus, asset prices will enter a range of volatility. If prices are to rise further, new information is needed to stimulate the market.
  Otherwise, after the shock, everyone will start to reflect on whether the trading opportunity is over and the optimism is too much? Because if the price does not break through for a long time during the upswing cycle, this is actually a manifestation of the lack of upside momentum. Investors will start to give higher weight to the bearish, or actively look for the bearish, and asset prices may enter a downward trend from then on.
  If it starts from a sharp decline and turns to a rise, the general process is similar to the above. In this wave, treasury bond futures fell sharply. The most important thing is that high-frequency data shows that fundamentals are improving significantly and the central bank’s monetary policy is repricing. If in the next few days, the fund interest rate can stabilize and stop rising, then the market will have set the price for the latter, and this factor will not become the driving force for the continued upward trend of interest rates.
  The most important thing is the fundamentals. The tangled point is that since the market has already reflected the expectations of fundamental improvement, should the May economic data come out to buy? Take advantage of all the logic? There may be two situations. 1) If the high-frequency data in June shows that the momentum of economic improvement is greatly reduced, then the direction is the same, and it is no problem to buy. 2) If the high-frequency data continues to improve in June, you should not buy it at this time, because all the bad news is a false proposition. After this bad news, there will be new bad news.
  Of course, the analysis of the market should not only look at whether the factors that caused the previous crash have changed, but also whether there is potential incremental information.
  For example, there is now more focus on the external environment (the over-repair of US stock valuations, Sino-US relations, the second recurrence of the epidemic), and inflation.
  If these positive and negative factors are intertwined, it will be more difficult. We propose an observation method that can be verified with the next market trend. That is, if the negative factor has existed before, then its influence on market pricing is declining, while the influence of newly emerging positive factors on market pricing is rising.
  This process is a process of constant changes in the main contradictions of market pricing. Applying this logic to reality, one can look at it this way: The negatives that have appeared are obviously the change in the attitude of the central bank and the improvement of fundamentals.
  A large part of these two may have been reflected in the current market price, and their influence on the market has been greatly reduced. To continue to push interest rates upward at this point, the fundamentals need to continue to improve substantially, or the central bank’s hawkishness is heavier than market expectations.
  To improve fundamentals, we need to track high-frequency data to see if this round of economic rebound has ended. This is more difficult. It is difficult to make it clear here, we will look for opportunities to talk about this issue later.
  Because high-frequency data fluctuates, the data may decline this week, but will improve substantially next week, and the overall improvement is. If you only look at this week’s data, it is easy to draw the wrong conclusion that the rebound trend has ended.
  But the quality of the hawks is relatively certain, and it is likely that they will no longer exceed market expectations. Leveraged speculation has been greatly reduced, and the pressure of exchange rate depreciation has also weakened. Bond financing, once the main contributor to the expansion of social financing, has been significantly reduced in the context of the bond adjustment in May, and continues to increase the quality of hawks, which will affect credit expansion. The big picture. When the central bank pulls the current fund price back to near the policy interest rate (this is already expected by the market), the monetary policy repricing will basically end. Therefore, the most critical issue now is the fundamental issue. It depends on whether the weak fundamental expectations we put forward in “Why is the bond crash” can be fulfilled and when it will be fulfilled.
  Short-end interest rate + term spread
  Second, we can decompose the long-term interest rate into short-term interest rate + term spread.
  The short-end interest rate is expressed by DR007 or the 7-day reverse repurchase policy interest rate. This interest rate has dropped by at least 30 BP from before the epidemic. This should be reflected in the pricing of the long-end interest rate.
  Judging from the position of 3.0% before the epidemic, it should be reasonable for the 10-year Treasury bond yield to maturity to reach 2.7% now that it is down 30BP.
  But it also depends on the term spread. The term spread has now reflected a certain degree of fundamental improvement expectations. Based on 2.7%, there are two ways to go. First, the fundamental improvement has come to an end, the maturity spread has been compressed, and the 10-year Treasury bond yield to maturity has fallen below 2.7%. As for the extent to which the benevolent sees the benevolent, the wise see the wisdom, but it is certainly impossible to return to the 2.5% level.
  Because the economy was only 2.5% when it was at its worst and most pessimistic, the market’s expectations are definitely better than that, no matter how bad the current economic situation is.
  Second, the fundamentals continue to improve, and the maturity spread continues to widen on the existing basis. The 10-year Treasury bond yield to maturity will rise along 2.7%, but it will be difficult to return to the position before the epidemic, and the highest will be reached. 3%.
  Therefore, the yield of the bond market will oscillate in the upper and lower ranges. The top is obvious, and 3% is a very difficult golden peak.
  The bottom line is difficult to judge, maybe 2.6% or 2.7%. We are leaning towards 2.7% in “What is the reason for the bond crash”. If the interest rate drops below 2.7%, investors may have to pay attention to take profit and exit the market.
  The current 2.8% 10-year Treasury bond yield to maturity, the odds and winning rate are definitely higher than in May, because the risk has been released.
  But there are still uncertainties. One is when the economic improvement trend will slow down, and the other is when market sentiment can truly stabilize. At this point, if investors have a high tolerance for floating losses and a high risk appetite, they can start to do a little bit on the left and buy more as they fall. However, if you are more sensitive to floating losses, it is recommended to wait a while, wait for the market stability to be determined, and find a new pricing anchor before buying.

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