In 2020, the impact of the COVID-19 epidemic will run through the whole year, and the global financial market will experience a rare earthquake. In this context, the overall yield of China bond market will first decrease and then increase, and the curve tends to be flat. Looking forward to 20021,the global pattern of low interest rate, low growth and high debt will continue. Under the guidance of the "double cycle" development strategy, China's economy is expected to continue to recover, and the bond yield will follow the fluctuation of the domestic economy, which has obvious cyclical characteristics. The impact of credit risk exposure is worthy of attention.

I. Review of bond market trends in 2020

(a) Review of market trends

Looking back on 2020, the bond market returns first went down and then went up, and fluctuated greatly throughout the year. The epidemic affected COVID-19 throughout the year. At the beginning of the year, affected by the sudden epidemic, the more flexible and moderate monetary policy of the central bank and the rising risk aversion in the market, the yield continued to decline. Since May, the domestic epidemic prevention and control has been gradually normalized, the market liquidity expectation has converged, and the supply of superimposed interest rate bonds has been boosted, pushing up the yield. By the end of 1 1, the yield of 1 year treasury bonds was 2.83%, up by about 50bp compared with the end of last year, and the yield of 10 year treasury bonds was 3.25%, up by about 12bp compared with the end of last year, and the curve tended to be flat.

The first stage is from the beginning of 2020 to the end of April. Affected by the sudden outbreak of COVID-19, the global central bank's monetary policy has been completely relaxed, and the central bank has intensified its countercyclical adjustment, resulting in a sharp drop in the yield and a steep curve.

The second stage is from May to the end of 2020. Due to the effective prevention and control of domestic epidemic, the expectation of fundamental recovery, the emphasis on countercyclical adjustment in monetary policy, and the increasing pressure on bond supply, the overall yield has increased.

(2) Market characteristics

First, the credit spread range fluctuated, and high-rated issuers defaulted to a new high. Since 2020, the overall credit spread has fluctuated widely, and there have been two expanding trends during the year. First of all, from early May to mid-July, the overall credit spread widened by 20-30 basis points due to the change of market expectations and the tightening of the money market. Second, the credit risk of 1 1 rose in the middle and late period, and the risk events of state-owned enterprises such as Yongmei Coal Industry continued, and the spread of low-rated credit widened. AA rating 1 year and 5-year credit spreads increased by 72 and 54 basis points respectively. In terms of credit default, by the end of 1 1, the annual default bond scale was nearly138 billion yuan, exceeding the level of the previous year. Among them, high-rated issuers defaulted to a new high, and issuers of five AAA-rated state-owned enterprises such as Yongmei Holdings and Ziguang Group defaulted, involving a default scale of nearly 67 billion yuan, a record high.

Second, the market fluctuates greatly and the callback speed is fast. This round of bond market correction began at the end of April and lasted for nearly seven months. Although the current bear market lasted less than a year, the adjustment range and speed were more prominent, and the short-term callback speed was the fastest in history. Taking the national debt as an example, in the past seven months, the yields of 1 year and 10-year national debt have been adjusted back to 180 and above 80 basis points, respectively, and the curves show the characteristics of "Xiong Ping". The short-term sharp adjustment is mainly driven by the tightening of market liquidity expectations and the withdrawal of interbank arbitrage strategies such as "rolling short and investing long" when liquidity is abundant in the early stage.

Third, the inter-bank market was accelerated to open to the outside world, and foreign investment continued to increase. The spread between China and the United States remains high, the RMB exchange rate remains strong, and foreign institutional investors continue to increase their holdings of China bonds. By the end of 1 1, the balance of China bonds held by overseas institutions was nearly 3 trillion yuan, accounting for 2.7% of the existing bonds. Nearly 60% of the positions held by foreign-funded institutions have become treasury bonds, and they have increased their holdings for 20 consecutive months, holding/kloc-0.7 trillion yuan, accounting for 9.5% of the balance of treasury bonds custody, which has certain market pricing influence on treasury bonds.

Second, 202 1 analysis of the main influencing factors of the bond market

China bond market in 20021year will be mainly influenced by many factors such as China's economic fundamentals, macroeconomic policies, market development and opening-up, global market environment, linkage of large-scale assets and so on.

(1) The economic fundamentals continue to pick up.

202 1 year is the first year of the 14th Five-Year Plan and the centenary of the founding of the Communist Party of China (CPC). Under the guidance of the "double cycle" core development strategy of the CPC Central Committee, endogenous growth promotes economic recovery, and external demand is uncertain. In terms of domestic demand, the driving force of economic growth will mainly come from manufacturing and consumption. Under the background of "internal circulation" as the core, the space for improving terminal demand will continue to be released, and the investment in manufacturing industry will be stronger if combined with the improvement of enterprise revenue and profit growth. In addition, with the economic recovery and the expected approach of the vaccine market, improved consumer confidence will release the potential for service consumption (catering, tourism, etc.). ) will stimulate consumption growth. In terms of external demand, in the second half of 2020, China's import and export showed strong resilience. Driven by the export of epidemic prevention materials, the export growth rate continued to exceed expectations. 202 1 the overseas economy will be restarted and repaired, and the export supported by external demand is at a high level. However, due to the slow recovery in consumption abroad, the epidemic situation has recurred, and it is possible to fall back. In terms of imports, the first-stage agreement between China and the United States is an important factor. If the United States insists on the agreement or promotes the improvement of China's imports.

To sum up, 202 1 economic growth will continue to rebound, and this round of rebound growth is likely to appear in the first quarter. It is expected that the economy will rebound sharply in the first half of this year. Due to the low base utility, the year-on-year growth rate of this round of economic rebound will be higher in the first quarter, and the expected quarterly growth rate is expected to reach 15%~20%, and then it will decrease quarter by quarter, showing a trend of high before and low after. The market generally expects the annual economic growth rate to be around 8%~9%.

Macroeconomic policies tend to be normalized.

At the end of July, 2020, the Political Bureau of the Communist Party of China (CPC) Central Committee Conference pointed out that "the cross-cycle design and adjustment of macro-control should be improved to achieve a long-term balance between steady growth and risk prevention", which indicated that the policy orientation had changed from "steady growth" during the epidemic period to "steady growth". Subsequently, the Financial Committee, the China Banking Regulatory Commission and other regulatory agencies have emphasized "stabilizing leverage" and "keeping the bottom line without systemic risks", and the latest monetary policy implementation report of the central bank mentioned "the general gate of money supply". 12 in late February, the central economic work conference pointed out that "the macro policy should be continuous, stable and sustainable next year; Policy operations should be more precise and effective, do not make sharp turns, and grasp the effectiveness of policies. "

In this context, looking forward to 202 1, the monetary policy is expected to be stable. Since the outbreak of the epidemic in 2020, the policy combination of wide money and wide credit has achieved good results, and monetary policy has gradually returned to normalization since the second half of the year. 202 1 considering the factors such as stable economic growth and macro leverage ratio, it is expected that the tone of monetary policy will be steady, flexible and moderate, with the possibility of marginal tightening, but there will be no sudden braking tightening, and the policy focus will pay more attention to structural orientation, serve the overall situation of high-quality economic development, and further resolve financial risks.

In terms of fiscal policy, it is expected to remain positive. With the economic recovery under the normalization of epidemic prevention and control, the stimulus will be marginal. In 2020, in response to the impact of the epidemic, the fiscal policy was generally very active, with the deficit increasing by 1 trillion yuan, reaching 3.76 trillion yuan, new anti-epidemic special bonds increasing by 1 trillion yuan, and various unconventional policies such as tax reduction and fee reduction. 202 1 considering that the economy is in a state of sustained recovery, the demand for infrastructure-based economy has changed marginally, and the stimulating effect of fiscal policy will be weakened. It is widely expected in the market that the financial deficit ratio will fall from the high of 3.6% or more in 2020 to around 3%, and the probability of issuing special bonds on a large scale is low. It is estimated that the amount of new special bonds will be less than 3.75 trillion yuan in 2020. On the whole, the generalized fiscal deficit ratio (national debt+local debt) is expected to be around 6%, down about 2 percentage points year-on-year.

(3) The process of opening to the outside world continued to deepen.

In the past two years, under the complicated international financial situation, the pace of China's opening to the outside world has continued to accelerate, especially in the fields of capital market reform and financial services. In this process, China's bond market has been included in the three major international bond indexes, with remarkable achievements. Outlook 20021The Fifth Plenary Session of the 19th Central Committee emphasized "high-level opening to the outside world". As an important part of the "double cycle" strategy, the process of further opening up of China's financial market will continue to deepen. Against the background of the intensification of negative interest rates in Europe and America, the trend depreciation of the US dollar, the normalization of China's monetary policy and the high spread between China and the United States, the global allocation value of China's sovereign bonds is still outstanding, and it is expected that there is still much room for the depth and breadth of foreign investment in China's bond market. In addition, at present, the proportion of foreign investors allocating credit bonds is less than 4% of their positions. With the launch of the world's first China credit bond index by Bloomberg and the opening policy of foreign rating companies in China, the depth of foreign institutions' participation in the credit bond market will gradually increase.

(d) The global pattern of low interest rates and low growth continues.

Since the beginning of 2020, with the spread of COVID-19 epidemic around the world, European and American economies have suffered the worst recession since World War II. In response to the shock, the Federal Reserve adopted unconventional stimulus policies such as large-scale expansion and monetization of fiscal deficit, and the European Central Bank also launched a series of large-scale easing policies. In the second half of the year, European and American economies showed the characteristics of slow recovery.

202 1 under the influence of the mass production of vaccines and the repeated impact of epidemic situation under group immunization, the overseas economic recovery is still full of great uncertainty, and it is difficult to withdraw the stimulus policy in the short term. The global pattern of low interest rates and low growth is expected to continue. In the United States, for example, the Federal Reserve has revised its monetary policy framework. Under the current "average inflation targeting system" mechanism, it is expected that its monetary policy orientation will remain loose in the medium and long term, and the zero interest rate level will continue until 2022. In this environment, the liquidity of overseas markets will remain abundant for a long time. If there are unexpected events such as vaccine research and development and accelerated application in the future, it will further stimulate the market to make multi-risk assets. Large-scale assets such as stocks and commodity markets may still have upside, and defense sectors such as bonds and gold will be suppressed simultaneously.

Three. 202 1 year bond market outlook

Looking forward to 20021,benefiting from effective epidemic prevention and control, China's economy will continue to recover, domestic macroeconomic policies will gradually return to normalization and maintain strong independence on a global scale under the new development pattern of "taking domestic big cycle as the main body and domestic and international double cycle". Affected by this, the bond market will follow the domestic economic fluctuations, showing obvious cyclical characteristics. It is expected that the yield will fluctuate at a high level and the interest rate center will move up in the first half of the year.

In terms of interest rate trend, it is expected that the yield of 202 1 may be high before and then low, and the turning point of the trend may appear after the second quarter. In the first half of the year, it is expected that important indicators such as social integration, CPI, PPI and GDP will climb to the high point of the year, and economic fundamentals will have a negative impact on the bullish sentiment in the bond market. Whether the high point of economic and financial data in this round of recovery exceeds expectations, the return of macroeconomic policies to normal rhythm, and the performance of risky assets such as equity market in the same period will be important factors to determine the degree of interest rate correction. In the second half of the year, the year-on-year data of economic growth and prices fell, the supply pressure of interest rate bonds fell year-on-year, and the inflection point of yield was expected. However, it is necessary to pay attention to the application of vaccines at home and abroad and the unexpected recovery of European and American economies to boost risk sentiment.

In terms of credit risk, it will be the general trend to break the rigid exchange, and we need to pay attention to the risk exposure brought by the turning point of credit policy. The short-term impact of Yongmei's default at the end of 2020 can be controlled, and the market is mainly worried about the subjective malice of relevant issuers, thus completely disrupting the credit market ecology. Judging from the subsequent development, the fear of malicious evasion of debts has been obviously alleviated, and the extreme situation of "one size fits all" for state-owned enterprises with weak qualifications will not happen. Judging from the development process, China's credit bond default will inevitably go through an evolutionary development stage of occasional cases, gradual increase and normalization. It is expected that the credit risk of 202 1 will be further cleared. Therefore, in the environment of marginal contraction of credit policy, it is necessary to pay attention to the rhythm and frequency of credit risk exposure, especially for the issuers of highly leveraged state-owned enterprises and private enterprises in areas with tight financial resources.

This article comes from China money market.