Since November, the long sluggish Chinese dollar bond market has rebounded. Only last week (November 21-27), the Bloomberg Barclays index of Chinese dollar bonds rose 0.51% on a weekly basis, partly due to the decline in US bond rates. For the two key industries of US dollar bonds, urban investment and real estate, institutions have expressed varying degrees of optimism, especially in the context of the continuous implementation of the "package debt plan", the domestic and foreign interest rate spread of urban investment bonds needs to be digested by overseas institutions.
The US bond interest rate has declined, and the US dollar bond market has rebounded over the past month
Since the Federal Reserve entered a cycle of interest rate hikes and frequent domestic real estate thunderstorms, the Chinese dollar bond market has fallen into a long-term slump. Since November, the Chinese dollar bond market has rebounded.
Figure: Performance of Chinese dollar bond index
(Source: Guoyuan International Securities, compiled by Caixin News Agency)
According to data from Guoyuan International Securities, during the week of November 21-27, the Bloomberg Barclays index of Chinese dollar bonds rose 0.51% on a weekly basis, while the emerging market US dollar bond index rose 0.96%. The latest price of the Chinese dollar bond investment grade index was 173.8812, with a weekly increase of 0.34%; The latest price of the Chinese dollar bond high yield index was 130.9155, with a weekly increase of 1.72%.
Looking at different industries, the two key industries of real estate and urban investment have generally rebounded. According to data from CICC's fixed income team, in terms of real estate, Vanke's US dollar bond curve rose by $1-10 to the range of $64-98 for the week from November 21 to November 27; The Longfor US dollar bond curve rose by $10-12 to the range of $54-67; Jindi Group's US dollar bonds due in 2024 rose by around $11 to around $51; The New City US dollar bond curve rose by around $6-12 to the range of $30-56.
In terms of urban investment, there were many rising securities. From November 21st to November 27th, the 1-2Y Shouchuang Group rose by $3.3-4.4, the 1.83Y Yancheng Oriental rose by $1.75, the 287D Changchun Chengfa rose by $1.38, the 2.03Y Kunming Rail Transit rose by $1.22, and the 305D Weifang Urban Construction rose by $1.2.
In terms of finance and other industries, the AT1 yield of banks fluctuates, with large banks experiencing changes ranging from -7bp to 14bp; In the state-owned enterprise sector, Sinopec's long-term yield has decreased by 2-8bp, while Sinopec's long-term yield has decreased by about 4-11bp; The TMT sector saw a majority of gains, while Alibaba and Tencent saw a majority of declines, while Baidu saw a majority of gains.
The overseas research team of Guosen Securities believes that the trend downward window of US bond interest rates has opened, and US dollar bonds have entered a golden allocation window. Under the influence of weak inflation and retail data, combined with early interest rate cuts and improved US bond supply and demand patterns, the 10-year US bond interest rate has continued to decline, breaking below the previous support level of 4.5% and rapidly approaching the next support level of 4.34%. However, the decline in short-term interest rates is relatively small, and the US bond yield curve has turned to a bull level. Looking ahead to the future, there are initial signs of weakness in the US economy, expectations of loose monetary policy are heating up, and the 10-year US Treasury bond rate has confirmed its previous high of 5%.
Urban investment US dollar bonds are in high demand, while real estate US dollar bonds have hidden secrets
With the promotion of the debt policy, domestic urban investment bonds have recently been sought after. In the situation where domestic urban investment bonds are almost scarce, more and more investment institutions pursuing high returns are targeting investment opportunities in the overseas urban investment US dollar bond market. According to data from Enterprise Warning, as of November 29th, there were 2746 Chinese dollar bonds with a cumulative scale of $805.886 billion, and 414 urban investment bonds with a cumulative scale of $73.113 billion.
The overseas research team of Guoxin Securities suggests focusing on investment grade US dollar bonds with high interest rate spreads and low credit risk both domestically and internationally, such as urban investment, financial, and non-financial sectors. The investment grade return rate and the domestic and foreign interest rate spread are both at historical highs, making the valuation highly attractive. The duration can be appropriately extended to gain capital gains.
According to media reports, some private equity fund practitioners have stated that the generation of price differences between domestic and international markets is due to different monetary policy cycles. The Federal Reserve has continued to raise interest rates, and the risk-free yield has been rising. The domestic "self centered" monetary policy has remained loose, and the risk-free yield is relatively stable; The second reason is that the composition and trading habits of investors in the two markets are different, and the rating models of the three major overseas rating companies for urban investment are also slightly different from those in China.
"The domestic and foreign interest rate spread of urban investment bonds needs to be digested by overseas institutions." The investment director of a foreign-funded institution in China believes that after the launch of a comprehensive bond plan, the yield of domestic urban investment bonds has been compressed, while the response of overseas institutions has lagged behind.
Xu Liang, Chief Analyst of Fixed Income at Debon Securities, also stated that with the continuous implementation of the comprehensive debt plan, based on investment style preferences, product liability stability, and institutional research strength, it is recommended to focus on urban investment US dollar bonds in Shaoxing, Chongqing, Shaanxi and other places.
The fixed income team of CICC is more optimistic about the high yield bonds gathered in the real estate market. Affected by recent favorable policies, some top real estate companies have seen a rebound in their US dollar bonds. In the future, it is necessary to focus on the implementation of financing support policies and consider supporting real estate companies with clear implementation and good business layout.
For real estate bonds, Xu Liang believes that some real estate companies with high sales elasticity, relatively low debt ratios, and projects mostly located in high-quality first and second tier cities can be selected.
The overseas research team of Guoxin Securities believes that the real estate sector is still in a slow recovery stage due to its fundamentals, and the internal recovery differentiation is still obvious. With the boost of the whitelist expansion policy, there is expected to be a short-term game opportunity. It is recommended to pay attention to high-quality central state-owned enterprises with smoother financing channels and more stable sales. The above-mentioned foreign-funded institutions in China also expressed optimism about the boost of the whitelist policy on real estate US dollar bonds.
Figure: The entities worth paying attention to in Chinese dollar bonds
(Source: Debang Fixed Income, organized by Caixin News Agency)