China Merchants Securities Xie Yaxuan-U.S. Treasury Yield Curve Upside Down Benefits Chinese Stock Bonds

China Merchants Securities Xie Yaxuan: U.S. Treasury Yield Curve Upside Down Benefits Chinese Stock Bonds

[China Merchants Macro]Market performance and outlook after the U.S. Treasury yield curve is inverted Xie Yaxuan and Zhang Yiping’s core point of view: On March 22, the U.S. 10-year Treasury yield and the 1-year Treasury yield returned upside down again.

After the Volcker shock, the upside down occurred three times, respectively: (1) January 25, 1989-October 13, 1989.

Corresponding to the 90/91 crisis, the real GDP growth rate of the United States recorded a negative value in the first quarter to the third quarter of 1991.

(2) March 20, 2000-January 2, 2001.

In response to the Internet crisis.

(3) June 6, 2006-August 8, 2007.

Corresponds to the subprime crisis.

  The Fed has raised interest rates after three inversions.

(1) The U.S. Federal Reserve raised interest rates four times from February to May 1989, and turned to a rate cut in June 1989; (2) The U.S. Federal Reserve raised interest rates twice from March to May 2000;The Fed raised interest rates once a year in June of each year, and turned to cut interest rates in September 2007.

  The narrowing of term spreads and even the final inversion has a correlation with the actual economic growth rate, but the leading and lagging relationship is uncertain.

(1) January 25, 1989 to October 13, 1989.
The top of US real economic growth occurred in the first quarter of 1989.

(2) March 20, 2000-January 2, 2001.
calm.

The top of US real economic growth occurred in the second quarter of 2000.

(3) June 6, 2006-August 8, 2007.
Stocks rose and debt fell.

The top of US real economic growth occurred in the first quarter of 2006.

  The severe decline in the US Dow Jones occurred when the actual economic growth rate fell rapidly. Only during the Internet crisis, when the economic growth rate peaked, it fell significantly.

The high probability of a deterministic decline in US Treasury yields will need to wait until monetary policy does shift towards easing.

The performance of commodity prices is more relevant to that of emerging economies.

  During the upside down period, China’s stock bonds were all earnings, or they were mainly related to capital inflows.

Only when the US economic growth rate does have an impact on the domestic economy will external influences turn to the Chinese stock market.

For this upside down, the short-term should be good for A shares.

In the medium term, the US economic transition will be a drag on China. We believe that this time the US economic substitution will be more moderate, so it is difficult to have scenarios like the Internet crisis and the subprime crisis.

The inflow of funds will also benefit the bond market in the short term, but it is also necessary to consider factors such as rising physical financing needs and policy hedging.

In the medium term, if the economy and growth rise, the yield on the ten debts will generally fluctuate upward.

  We will have more in-depth reports on the inversion of U.S. Treasury yields, so stay tuned.

  The following is the content of the text: 1. Some basic facts about the inverted curve of the US Treasury bond yield. On March 22, the 10-year Treasury bond yield and the one-year Treasury bond yield were inverted.

After the Volcker shock, the upside down occurred three times, respectively: (1) January 25, 1989-October 13, 1989.

Corresponding to the 90/91 crisis, the real GDP growth rate of the United States recorded a negative value in the first quarter to the third quarter of 1991.

  (2) March 20, 2000-January 2, 2001.
In response to the Internet crisis.
  (3) June 6, 2006-August 8, 2007.
Corresponds to the subprime crisis.
  The Fed has raised interest rates after three inversions.
  (1) The Federal Reserve raised interest rates four times from February to May 1989, and switched to a rate cut in June 1989. (2) The Federal Reserve raised interest rates twice from March to May 2000, and switched to a rate cut in May 2000.The US Federal Reserve raised interest rates once a month, and in September 2007, it switched to interest rate cuts three times. After that, the yields on the US ten debts continued to rise in the short term.

  On January 25, 1980, the yield on the US 10 debt was 8.99% since then to 9 on March 20, 1989.

53% On March 20, 2000, the yield on US-ten debt was recorded at 6.

18% since then to 6 on May 8, 2000.

57% On June 6, 2006, the yield on the US Ten Bonds was 5.

01%, and thereafter rose to 5 on June 26, 2006.

The Dow Jones Index performed differently during the second and third inversions of 25%. During the 90/91 crisis, the decline in the US stock market occurred from July 1990 to October 1990, with a high of 2999 on July 16, 1990.

75, low of 2365都市夜网 on October 11, 1990.

10, down 21.

2%.

In other words, the stock market as a whole rose during the entire period of inversion.

  During the Internet crisis, the Dow Jones index peaked on January 14, 2000 (11722.

98), October 9, 2002, reached a staged bottom 7286.

27 points, down 37 with the highest point ranking.

8%.

That is to say, the stock market as a whole has fallen throughout the period of inversion.

  During the subprime crisis, on October 9, 2007, the Dow Jones Index reached 14,164.

It began to decline after 53 points; on March 9, 2009, the Dow Jones Index reached 6547.

The bottom of 05 then started to rise.

In proportion to the highs of October 2007, and the lows of March 2009, the Dow Jones Index fell 53.

8%.

In other words, the stock market as a whole rose during the entire period of inversion.

  Commodities (with the lowest CRB spot composite index) performed differently during the three inversions.

  (1) January 25, 1989 to October 13, 1989.
Commodities fell.

  (2) March 20, 2000-January 2, 2001.
calm.

  (3) June 6, 2006-August 8, 2007.
rise.

  The performance of China’s stock bonds during the last two inversions.

  (1) March 20, 2000-January 2, 2001.

Stocks and bonds both rose.

  (2) June 6, 2006-August 8, 2007.

Stocks rose and debt fell.
  Third, the term spreads of some basic concepts have narrowed, and even the final inversion has a correlation with the actual economic growth rate, but the leading and lagging relationship is uncertain.

  (1) January 25, 1989 to October 13, 1989.
The top of US real economic growth occurred in the first quarter of 1989.
  (2) March 20, 2000-January 2, 2001.
calm.

The top of US real economic growth occurred in the second quarter of 2000.
  (3) June 6, 2006-August 8, 2007.Stocks rose and debt fell.
The top of US real economic growth occurred in the first quarter of 2006.
  The severe decline in the US Dow Jones occurred when the actual economic growth rate fell rapidly. Only during the Internet crisis, when the economic growth rate peaked, it fell significantly.

The high probability of a deterministic decline in US Treasury yields will need to wait until monetary policy does shift towards easing.
The performance of commodity prices is more relevant to that of emerging economies.
  During the upside down period, China’s stock bonds were all earnings, or they were mainly related to capital inflows.
Only when the US economic growth rate does have an impact on the domestic economy will external influences turn to the Chinese stock market.

  Fourth, the upside-down target should be positive for the stock market in the short term. In the medium term, the US economic substitution will be a drag on China. We believe that this time the US economic situation will be relatively mild, so it is difficult to have situations like the Internet crisis and the subprime crisis.

  The inflow of funds will also benefit the bond market in the short term, but it is also necessary to consider factors such as rising physical financing needs and policy hedging.
In the medium term, if the economy and growth rise, the yield on the ten debts will generally fluctuate upward.

  China Merchants Macro Team: Xie Yaxuan, Luo Yunfeng, Zhang Yiping, Liu Yaxin, Lin Ye, Gao Ming, Zhang Qiuyu