US Federal Reserve Raising Interest Rate Will Soon Be Heard.

Under the influence of the Fed's rate hike in December, the bond market seems to be surging.

American companies are issuing large sums of money to lock in billions of dollars in low interest financing before raising interest rates. Meanwhile, large speculative investors, mainly hedge funds, are betting on the bull market of bonds, which will soon come to an end. Short positions in the US debt market have risen to a 9 year high.

Howard Max, a joint chairman of OAKTREE, recently said in an interview with reporters: "after the financial crisis, the United States first implemented a large-scale stimulus policy, which made it the first developed economy in recovery." (HowardMarks)

But in the long term low interest rate environment, investors' investment makes bond prices higher, and the Federal Reserve's next rate hike will bring pressure on the price of these assets, and the return and return of investment will be limited.

At the same time, the expected changes in the Fed's rate hike and the blockbuster of China's A share IPO will restart the Chinese view of whether the "debt cow" can continue.

The industry generally believes that the short-term bond market continued to rise cautiously, and in the long run, under the current deflation pressure in China, moderate easing policy will still make the bond market in the bull market.

US interest rate hikes are expected to be strong, along with many factors such as A shares IPO will resume and investor risk appetite pickup.

China's financial futures exchange's 10 year treasury bond futures contract CFTc1 closed at 97.290 yuan on Monday, down 0.97% from the previous day's settlement price, the largest single day decline since the listing, while the five year treasury bond futures contract closed at 99.085 yuan, down 0.57% from the previous day's settlement price, and also hit the biggest one-day drop in 4 months.

In this regard, the industry believes that the recent bond market suffered heavy losses in the short term, the impact is inevitable in the short term.

First, IPO is about to restart, leading to the withdrawal of funds and the return of stock market to the stock market.

The Fed's interest rate hike is expected to heat up, in addition to the pressure on China's foreign exchange, but also led to a rebound in the value of the renminbi is expected to rise again.

In November 10th, the latest inflation data showed that the CPI 1.3% in October had fallen sharply from the previous value of 1.6%. In the previous day, the central bank announced the three quarter monetary policy implementation report, the first use of the wording of "unable to overtake water and impede effective market clearing".

China Merchants Bank

Liu Dongliang, a head office, told reporters: "if there is a negative real interest rate next year, it should not be surprised that there will be a double fall in the year, and the bull market of bonds will continue to be judged."

Liu Dongliang further explained that the current macro-economic downlink cycle has not yet ended. At present, the turning point of monetary policy is still too early. The future direction of double reduction has not changed. If the central bank introduced a slower pace of monetary policy adjustment, it would postpone the economic stabilization point. This actually means that the cycle of the central bank's stable policy will last longer, and it will continue to create a good macro background for the bond bull market.

In addition, Morgan, chief economist of J.P. chase, Zhu Haibin recently said in an interview that the market is generally concerned about whether there is a bubble in the Chinese bond market. "It is too early to say this.

After all, the size of our bond market, especially at the corporate level, is not big. "

But he also stressed that there is a very big problem in the bond market, that is, the so-called "rigid payment" phenomenon.

"We should break the rigid payment in an orderly way. It is not important for an enterprise to fail or a bond default itself. The key is how to introduce a more market-oriented and open bankruptcy or default mechanism through exemplary role."

Zhu Haibin thinks.

Investors' attitude to the bond market depends largely on their attitude.

Whether the first rate increase initiative will be launched in December, and from the current US economic situation, this possibility is constantly improving.

According to FedWatch data from the Chicago Mercantile Exchange Group (CME), market participants expect the possibility of raising interest rates by the Federal Reserve in December has surged to 69.8%, while the previous (updated October 23rd) only 36.6%.

Affected by this expectation, the US Treasury bond prices fell sharply in November 9th, and the 2 year treasury bonds fell sharply.

Hovering at the highest level in five and a half years.

At the same time, 10 year treasury bonds also fell in price and the yield was 2.322%.

According to Thomson Reuters data, the yield of the 10 year treasury bond hit the highest 2.377% in July 21st after the announcement of non-agricultural data.

This week, the US Treasury will sell a total of $64 billion in treasury bonds.

From the 24 billion dollar three year treasury bond sold on Monday, investors are obviously not interested in winning the bid at 1.271%, the highest level since April 2011.

On the other hand, hedge funds, which have the most acute insight into the market, have begun to sell their bonds in a big way.

The US Commodity Futures Trading Commission recently released the futures position data as at November 3rd, indicating that the large speculators, mainly hedge funds, significantly increased 128 thousand contracts to the ten year Treasury futures in a week, to 164 thousand contracts, the highest since May this year, while the short positions rose to 571 thousand contracts, the highest since May 2006.

However, when the government bonds were cold shouldered, the US corporate bond market became exceptionally hot because of the increase in interest rates.

Thomson Reuters's IFR expects us investment grade corporate debt to reach $25 billion ~300 this week.

Insiders pointed out that as the Federal Reserve was about to launch its first increase in interest rates in the past ten years, American companies scrambled to lock in billions of dollars in low interest financing before raising interest rates, resulting in large debt issuance. The scale of corporate bond issuance this year hit the highest level in one fell swoop.

So far this year, US multinationals have raised over $132 billion through the massive debt issuance paction, which has increased by more than four times over the same period last year, according to data provider Dealogic.

These multinational companies include Microsoft, HP, United Health Group and so on.