On September 24th, the State Council Information Office held a press conference on financial support for high-quality economic development.

At the meeting, the central bank introduced a number of easing policies that exceeded market expectations in terms of intensity and variety.

As a result, the Shanghai and Shenzhen stock markets rose sharply, while the bond market closed lower.

How to understand the divergence between interest rate cuts and the bond market trend?

What is the logic behind the strengthening of equity assets?

Can it continue in the future?

Core viewpoint: The intensity of monetary policy easing exceeded expectations, but the bond market trend diverged from it.

At the press conference, the benefits of the total policy mainly manifested in two aspects: reserve requirement ratio (RRR) cuts and interest rate cuts.

In terms of RRR cuts, the central bank not only cut the RRR by 50 basis points (BP) this time, but also indicated that it would choose an opportunity to cut the RRR by 25~50BP before the end of the year, exceeding market expectations.

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After this RRR cut is implemented, the central bank will release liquidity of 1 trillion yuan, replenishing medium and long-term liquidity.

There was a strong expectation in the market for this RRR cut, especially in the context of the transformation of the monetary policy framework and the gradual fading out of the Medium-term Lending Facility (MLF).

The market generally believed that the central bank needed to compensate for the medium and long-term liquidity gap caused by the exit of 7 trillion yuan in MLF through RRR cuts and other means.

This RRR cut has fulfilled market expectations, but it should be noted that although this RRR cut has released liquidity, the final effect still needs to be comprehensively assessed in conjunction with the exit speed of MLF.

In terms of interest rate cuts, following the 10BP cut in July, the central bank announced another interest rate cut this time, and the magnitude has increased to 20BP.

After the interest rate cut, the policy interest rate (OMO) will fall back to 1.5%, and the issue of "inversion" between previous fund rates and short-term bond rates has been preliminarily alleviated.

It is worth noting that the central bank has adopted an asymmetric interest rate cut method this time, lowering the policy interest rate.

At the meeting, the central bank stated that the MLF rate would be reduced by 30BP.

If so, the MLF rate will fall back to 2.0%.

Since the end of June when the central bank announced the gradual exit from the MLF tool, the average yield of ten-year bonds has been 15 basis points lower than the MLF rate.

According to this simple linear extrapolation, when the MLF rate is reduced to 2%, the central ten-year bond yield may converge towards 1.85%.

Interestingly, at the beginning of the announcement of the RRR cut and interest rate cut, the bond market strengthened for a while.

Soon after, the yields on government bonds of all maturities generally rose, and the bond market fluctuated violently.

Among them, the rise in ultra-long bonds was the most obvious.

In response, the market generally interpreted this as the exhaustion of good news being bad news.

However, we believe that in addition to this, there are also the following negative factors in this bond market adjustment: 1.

The yield on government bonds is approaching the important threshold of 2.0%, and the market's expectations for future interest rate trends are diverging.

The bond market's sensitivity to bearish information has increased, and profit-taking positions have become a short-term force for short selling.

2.

The strong easing of monetary policy has led the market to anticipate a new round of macro policy easing.

The economic and financial data for the third quarter indicate that the current economy still faces certain pressures.

In response, some market participants have called for a new round of easing policies.

From historical experience, monetary policy is the "vanguard" of each round of macro policy efforts.

Today's unexpected monetary policy easing has stimulated the market's imagination for a new round of policy relaxation.

3.

The introduction of structural policy tools in the stock market has generated expectations for the diversion of funds.

At today's press conference, the central bank stated that it would create two tools: non-bank financial institution swap convenience and stock repurchase re-lending, and proposed to accelerate the research on the stabilization fund.

Encouraged by this, the equity market rose sharply, and pessimistic sentiment was improved.

Under the influence of the stock-bond seesaw effect, the market is worried that funds will be diverted to the equity market, thereby driving the bond market down.

The creation of new tools can theoretically provide liquidity for the equity market and improve valuations.

Compared with the adjustment of total policy, the equity market is more sensitive to the creation of the two structural policy tools, and these two new policy tools also constitute the biggest highlight of today's monetary easing policy.

According to the central bank's disclosure, in the future, it will create securities, fund, and insurance company swap conveniences, supporting qualified securities, fund, and insurance companies to obtain liquidity from the central bank through asset pledge, greatly enhancing the ability to obtain funds and increase stock holdings.

At the same time, it will create special re-lending to guide banks to provide loans to listed companies and major shareholders, supporting stock buybacks and increases.

It should be noted that the applicable scenarios of the two new tools are obviously different.

Among them, the non-bank financial institution swap convenience is to solve the current central bank's insufficient liquidity support tools for non-bank financial institutions, and to prepare for policy to alleviate liquidity risks of non-bank financial institutions in crisis situations.

Therefore, its contribution to this round of equity market increases is not significant.

In contrast, the special re-lending for stock buybacks is the main driver of this round of the market.

According to the information disclosed by the central bank, this tool can theoretically provide financial support for listed companies and major shareholders with the intention of buybacks, solving the problem of insufficient buyback funds.

In terms of operational details, the central bank stated: 1.

In terms of scale, initially set at 300 billion yuan, with no upper limit restriction; 2.

In terms of risk, the loans provided by commercial banks to listed companies and major shareholders can be fully applied to the central bank for "reimbursement", thereby reducing the risk of banks holding securities.

3.

In terms of interest rate arrangements, the interest rate of this re-lending tool is 1.75%, and the central bank allows banks to lend to customers at an interest rate of 2.25%.

In this way, commercial banks can enjoy a 50BP interest rate spread on a zero-risk basis.

It can be seen that this tool can avoid resistance from commercial banks to the greatest extent during the implementation process, effectively solving the problem of insufficient repurchase funds for listed companies.

For the equity market, the reduction of circulating shares theoretically has the effect of increasing valuation.

The adjustment of the existing mortgage loan interest rate has a neutral impact on commercial banks, and the increase in the "reimbursement" ratio of guaranteed housing re-lending helps real estate companies to reduce inventory.

At the press conference, the central bank stated that it supports commercial banks in reducing the existing mortgage loan interest rate by 50BP.

We believe that this will not have a substantial impact on bank profits.

Since the beginning of the year, the 5-year LPR has been reduced by 35bp.

According to the new pricing mechanism of LPR, the OMO cut of 20BP announced this time will make the cumulative reduction of LPR next month reach 55BP, exceeding the interest rate cut of 50BP for existing mortgage loans.

Therefore, the reduction of existing mortgage loan interest rates is mainly contributed by LPR.

Overall, banks do not have the need to make additional concessions.

In addition, the central bank stated that future deposit interest rates will be reduced proportionally, indicating that the reduction in the income of the bank's asset side can be offset by the reduction of the cost on the liability side, so the impact on banks is actually neutral.

For the real estate market, the reduction of existing mortgage loan interest rates is likely to have no direct impact on financing demand.

However, it should be noted that the central bank has stated that it will increase the "reimbursement ratio" of guaranteed housing re-lending from 60% to 100%, indicating that the potential risks of this loan will be fully borne by the central bank.

Theoretically, this will reduce the concerns of the 21 financial institutions issuing special loans, help real estate companies reduce inventory, and accelerate the construction of the guaranteed housing market.

However, in the actual operation process, it is also necessary to consider multiple factors such as loan term matching and investment returns for comprehensive assessment.

Conclusion and market impact: The package of easing policies introduced by the central bank will mainly play a role in improving the supply of funds, and the strong interest rate cut will theoretically also improve the demand for funds, having a positive impact on the market.

From the market perspective, the main risk faced by the bond market currently comes from the "seesaw effect" of stocks and bonds.

For the stock market, whether the newly created special tools can play their intended role depends on whether listed companies and shareholders can form repurchase demand from a practical point of view.

Based on the current situation, on the basis of the strong rebound of the stock market that day, whether the market can continue the upward trend still needs to wait for the disclosure of policy tool details and the test of actual landing effects.

In the short term, the new policy expectations will push the stock-bond balance towards the margin of equity assets, and it is recommended that fixed-income investors seize the opportunity to adjust.

Risk warning: Changes in domestic and international economic fundamentals exceed expectations; monetary policy exceeds expectations.