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Credit Bonds Slight Rebound; Caution Needed for Short-term Redemption Feedback
Recently, the credit bond market has undergone a deep adjustment. As of the close on October 9th, the yields on credit bonds of various maturities have risen significantly, with the selling of low-rated credit bonds intensifying, and the 1-year AA-rated medium-term notes have risen by more than 14 basis points. Affected by the adjustment of credit bonds, fixed-income financial products (bond mutual funds, bank wealth management) have experienced fluctuations in net value.
After the deep adjustment in the previous period, on October 10th, there were signs of recovery in the credit bond market. The yields on credit bonds of various ratings fell rapidly, with bank perpetual bonds seeing a larger decline. By the end of the day, the "24 Ping An Bank Tier 2 Capital Bond 01A" fell by 22 basis points, and "20 Minsheng Bank Tier 2" fell by 14 basis points.
The credit bond market has welcomed a small "respite," but does this mean that the market has stabilized? How far has the negative feedback from wealth management redemptions progressed? Industry insiders believe that the impact of this round of negative feedback from wealth management redemptions is controllable. The credit spread of current credit bonds is still at a low level in the long cycle, and it has a cost-performance ratio for medium and long-term allocation, but the adjustment may not have ended in the short term.
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The negative feedback of redemption is playing out.
Recently, the stock market has seen a significant rise, with six out of eight trading days showing increases, and the Shanghai Composite Index once reaching a high of 3674 points. However, many investors who prefer stable wealth management products have found that the net value of their fixed-income products has fallen. "A day's drop erases a month's interest," "The decline is still expanding"... Many investors have posted on social platforms to "complain" about the performance of the returns on their low-volatility wealth management products.
The reporter noticed that the underlying assets of the aforementioned wealth management products are mostly invested in bonds, especially credit bonds. In this round of adjustment since the end of September, the decline in credit bonds has been greater than that of interest rate bonds, and the decline in perpetual bonds is significantly higher than that of ordinary public mutual credit bonds. According to statistics from Zheshang Securities, among the 3-year credit bond varieties, the net price decline of perpetual bonds is the largest, in the range of 1.05% to 1.3%, followed by ordinary public mutual credit bonds, with a net price decline of 0.7% to 0.95%, and the net price decline of government bonds is 0.38%.
Around the National Day holiday, the credit bond market performed poorly. As of the close on October 9th, the interest rate bond market saw a slight decline, but most credit bond varieties rose, with an increase of more than 15 basis points. According to statistics from Hua Chuang Securities, in late September of this year, non-financial credit and perpetual bonds have already adjusted by 20 to 30 basis points, and on the first day after the holiday, they continued to rise significantly by 5 to 15 basis points, and there may still be room for adjustment.
Industry insiders told reporters that in fact, the adjustment of credit bonds started in August and did not end until the stock market boom in late September and October triggered wealth management redemptions, leading to the fermentation of negative feedback in the credit bond market.
Wind data statistics show that the main sellers of credit bonds currently come from mutual funds. The aforementioned person pointed out that the stock market boom attracted funds to enter the market. Most mutual funds are open-end funds, and when investors redeem wealth management, wealth management will redeem mutual funds at the first time. In addition, the net value performance of mutual fund products is more obvious, and investors can observe the changes in product net value every day, without "cushions" such as trust channels to buffer.
Ming Ming, the chief economist of CITIC Securities, pointed out that in the first nine months of this year, the credit bond market performed smoothly, and the trend of narrowing spreads was stable. Against the background of the implementation of unexpected stable growth policies before the quarter, the seesaw effect between stocks and bonds became prominent, and the credit market once again reached a watershed, with credit spreads adjusting from low points. Looking ahead, on the one hand, the profit-taking sentiment of institutional investors has warmed up, and on the other hand, potential redemption behavior under the pressure of asset reconfiguration may lead to further upward movement of credit spreads. In the short term, defense should pay more attention to the liquidity of assets.The adjustment in the short term has not yet concluded.
The surge in redemption pressure has sparked market concerns. Where are we now in terms of redemptions? How significant is the pressure from this round of credit bond adjustments? Looking at past experiences, redemption stampedes usually lead to bond market adjustments, which in turn cause a decline in the net value of bank wealth management products, leading to redemptions.
"Different from the past, this round of redemptions has a distinct characteristic of asset allocation shifts, rather than redemptions caused by a decline in the net value of wealth management," a wealth management company insider told the reporter. Currently, the main movement is the allocation of funds from fixed-income wealth management to the stock market. Considering that the stock market correction has already occurred in this round, the scale of redemption funds triggered by the stock market is relatively controllable.
On October 9th, the A-share market experienced a correction, ending the previous seven consecutive days of gains, and the redemption pressure on wealth management products eased. On the 10th, the bond market rose, credit bond rates fell, and the yields on some banks' perpetual bonds declined intraday. A fixed-income trader told the reporter that the market's expectations for the Ministry of Finance's press conference to be held on Saturday are quite average, and there are signs of stabilization in the bond market.
However, there are still industry views that warn of the impact of redemptions on the credit market in the short term. Market analysts pointed out that since August, this round of credit market adjustments has been aggressive. The total adjustment幅度 of credit spreads in August and September reached more than 15 basis points (BP), with both the adjustment amplitude and speed being the largest since the adjustment in November 2022. The market began to worry whether the credit market would experience a negative feedback impact like that in November 2022.
"The credit spreads of credit bonds are still at a low point in the long cycle, and the adjustment may not have ended yet," said Du Jian, a fixed-income analyst at Zheshang Securities. Although the credit spreads of various types have rebounded to the highest this year and have a high configuration value, looking at the long historical cycle since 2019, the percentile is still at a relatively low level, especially for long-duration, low-rated credit bonds, with historical percentiles mostly below 20%.
But in the medium to long term, there is no need for excessive worry. Mingming pointed out that on the one hand, with the rapid adjustment of credit bonds, the cost-effectiveness of credit segments such as urban investment and bank perpetual bonds has been highlighted again. It may be a better choice to lay out in advance for 2025 after the adjustment. On the other hand, the implementation of policies to stabilize growth cannot be separated from the cooperation of comprehensive interest rate reduction. The central bank's combination of reserve requirement ratio cuts and interest rate cuts will eventually open up the lower limit of interest rates, and the downward trend of credit interest rates can still be expected. "From the perspective of amplitude, after the credit spread is adjusted to 45~50BP, the configuration attractiveness of credit bonds may re-emerge."
In addition, with the adjustment of credit bonds, many industry insiders believe that the yield of credit bonds will once again have configuration value, and the yield of bank wealth management products will also be attractive.
However, a public fund insider in East China told the reporter that it needs to be noted that this round of credit spread widening may not end in the short term.
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