On the afternoon of the 24th, the central bank announced through its official Weibo that it carried out MLF operations of ***245.5 billion yuan on 22 financial institutions that day, including six-month and one-year terms, and the winning interest rates were higher than those in the previous period. Increase 10BP to 2.95 and 3.1.

The title mentions an interest rate increase, which may bring a lot of ambiguity. In traditional understanding, generally speaking, an increase in the benchmark interest rate for bank deposits and loans is an "interest rate increase." And why do we call this increase in the medium-term lending facility (MLF) interest rate an interest rate hike? The reason is easy to understand.

With the advancement of interest rate marketization, the role of traditional interest rate increases is getting smaller and smaller, and each bank has the right to float interest rates accordingly. Therefore, the central bank will affect market interest rates in the future by regulating the interest rates of "re-lending".

In this MLF operation, the central bank generally raised the winning bid rate by 10BP. Several markers that must be given are:

1. This increase is the first in the history of MLF operations. The interest rate was raised for the first time;

2. This was the first increase in the policy interest rate by the central bank in the past 6 years;

3. The central bank issued a signal to raise interest rates, the turning point of monetary policy was clear, and the bond market officially announced Entering a technical bear market.

Medium-term Lending Facility (MLF). It was established by the People's Bank of China in September 2014. The medium-term lending facility is a monetary policy tool used by the central bank to provide medium-term base money. It is targeted at commercial banks and policy banks that meet macro-prudential management requirements and can be carried out through bidding. The issuance method is pledge, and high-quality bonds such as treasury bonds, central bank bills, policy financial bonds, and high-grade credit bonds must be provided as qualified collateral.

The special nature of MLF determines that MLF is also a vane that guides financial institutions to adjust loan interest rates and social financing costs. Therefore, some people commented that raising MLF interest rates before the Spring Festival is a prelude to raising interest rates.

Four major reasons for the increase in MLF operating interest rates

1. Economic recovery welcomes the warm spring, providing conditions for the increase in policy interest rates

In the fourth quarter of last year, GDP increased by 6.8% year-on-year , expected to be 6.7, the previous value was 6.7, and the annual growth rate was 6.7. Consumption is still the first driving force for GDP growth, with a contribution rate of 64.6% to GDP. In December, the nominal growth rate of social consumption exceeded expectations and reached 10.9%, hitting a new high in recent years. Industrial production is overall stable, and the structure continues to be optimized. The added value of industrial enterprises above designated size in December was 6% year-on-year, which was lower than expected and the previous value, but remained at a high level this year. Although the year-on-year growth rate of infrastructure investment in December was 5.16, which was 8.58 lower than the previous value, it may be affected by factors at the end of the year. At the same time, real estate and manufacturing industries are picking up, and private investment has stabilized. In terms of prices, the CPI in December was 2.1 year-on-year, lower than the expected 2.2 and the previous value of 2.3. However, the CPI in January is affected by the Spring Festival peak shift and is expected to resume its upward trend; the PPI in December was 5.5 year-on-year, significantly higher than the expected 4.6 and the previous value of 3.3. So overall, fundamentals are still recovering, providing support for monetary policy to raise interest rates.

2. Short-term interest rates remain high, and policy interest rates are rising.

Recently, the weighted interest rates for inter-bank pledged repurchase have generally risen, and there is a certain interest rate difference with the policy interest rates. Last weekend on January 20, the weighted average interest rate of DR001 was 2.38, an increase of 29.06 basis points from the previous week; the weighted average interest rate of DR007 was 2.65, an increase of 31.67 basis points from the previous week; the weighted average interest rate of DR014 was 3.15, a decrease of 60.9 basis points from the previous week. basis points; the weighted average interest rate of DR1M was 3.60, an increase of 0.38 basis points from the previous week. As of January 20, SHIBOR's overnight, 7-day, 1-month, and 3-month changes were 27.20BP, 19.50BP, 14.78BP, and 13.39BP to 2.38, 2.59, 3.82, and 3.82 respectively. The 6-month and 1-year SHIBOR interest rates are around 3.7, which is quite different from the 1-year MLF operating interest rate.

In order to ensure the effectiveness of the policy interest rate and the correlation between the policy interest rate and the market interest rate, it is necessary to moderately increase the policy interest rate and reduce the spread between the market interest rate and the policy interest rate.

3. To deleverage and control real estate bubbles, it is necessary to guide interest rates to rise appropriately

As for the deleveraging policy, in our previous report, "Two major signals appeared last night! Long-term liquidity "Tight, Also Discussing Changes in the Three Markets of Stocks, Bonds, and Commodities" states that according to the proportion of interbank liabilities we have previously calculated, without currently including interbank certificates of deposit into interbank liabilities, the interbank liabilities of large banks across the country account for The ratio is relatively stable and has basically remained at around 6.2 since 2010. The latest level in December 2016 was 6.93. However, the proportion of interbank liabilities of small and medium-sized banks has shown an upward trend since 2010. By December 2016, this ratio had reached 21.66 (still rising from November). If the inclusion of interbank certificates of deposit is taken into account, some small and medium-sized banks The cap is likely exceeded, so interbank deleveraging is still on the way.

Especially in the recent past, the real estate market has shown signs of heating up again. Housing prices in first-tier cities have once again shown an upward momentum. Combined with the still large credit data in December and real estate investment reaching new highs, it is necessary for monetary policy to appropriately guide the medium and long term. Rising interest rates inhibit the resurgence of real estate bubbles.

How to deleverage, we believe, corresponds to two policies. One is regulatory policy. For example, there was news that "the central bank will transfer interbank deposit certificates from bonds payable to interbank liabilities, and interbank liabilities cannot be "Exceeding one-third of total liabilities", the other is to control credit growth and avoid the restart of asset bubbles; the second is to maintain the term interest rate spread. We believe that the low long-term interest rate in 2016 is the inevitable result of the market being too high. At the same time, the term interest rate spread is too high. Narrowness also leads to greater implied market risks. Therefore, in order to cooperate with regulatory policies to deleverage, monetary policy must also appropriately respond to the rise in long-term interest rates, break the market's unilateral expectations of downward interest rates, and eliminate excessive short-term speculation. , guiding institutions to rationally allocate long-term bonds to effectively support the real economy.

4. The Federal Reserve remains hawkish, and the interest rate gap between China and the United States faces challenges

In the early morning of Thursday, January 20, Beijing time, Federal Reserve Chairman Yellen said that the U.S. economy is gradually approaching the Fed’s goals. This speech increased market expectations for the Federal Reserve to accelerate the pace of interest rate hikes. From the perspective of interest rate differentials between China and the United States, we need to be wary of the risks brought about by the Federal Reserve's interest rate hikes. Comparing the recent situation in China and the United States, on the one hand, the Federal Reserve entered an interest rate hike cycle in December 2015. On December 14, 2016, the Federal Reserve raised interest rates again after a year. It is expected that as the U.S. economy gradually strengthens, the CPI data is in line with expectations. In 2017 The Federal Reserve will adopt a gradual interest rate hike strategy in 2019. On the other hand, although the U.S. dollar has weakened recently and the RMB exchange rate has remained stable, it should be seen that foreign exchange holdings are still declining, resulting in greater domestic liquidity pressure. According to our empirical research There is an obvious correlation between foreign exchange holdings and the interest rate differential between China and the United States. Therefore, it is necessary to appropriately guide medium and long-term interest rates to rise, maintain the interest rate differential between China and the United States, and prevent foreign exchange holdings from falling too quickly.

This time the central bank suddenly "raised interest rates" and the market has become unstable!

On the 24th, all early gains in the 5-year and 10-year Treasury bond futures were wiped out, and they recorded the largest decline in 2017. As of the close on the 24th, the ten-year government bond futures contract was at 97.270 yuan, down 0.85; the five-year government bond futures contract was at 99.095 yuan, down 0.36.

Inter-bank spot bonds

The yield rate of inter-bank spot bonds increased. As of the close on the 24th, the yield of 10-year CDB active bond 160213 increased by 8.64bp to 3.91, the yield of 160210 increased by 11p to 3.97; the yield of 10-year government bond active bond 160023 rose by 4.01bp to 3.28.

Treasury bond reverse repurchase interest rate

Exchange capital shortages are also intensifying, and the Treasury bond reverse repurchase interest rate has soared. As of the close on the 24th, GC001 on the Shanghai stock market closed at 3.150, an increase of 57.89; GC002 closed at 8.015, an increase of 245.47.

The data from the Shenzhen market is even more exaggerated. Yes, this increase is astonishing, mainly because the closing interest rate on the 23rd was only 0.002.

This time the central bank unexpectedly raised the MLF interest rate. Many institutions believe that monetary policy has reached an inflection point and a new round of debt bears has begun.

The Chief Analyst of CITIC Securities Fixed Income Mingming gave four major reasons for the increase in MLF operating interest rates:

The economic recovery welcomes the warm spring, providing conditions for the increase in policy interest rates;

Short-term interest rates remain high, and policy rates are rising;

It is necessary to deleverage and control real estate bubbles to guide interest rates to rise appropriately;

The Fed remains hawkish, and the interest rate gap between China and the United States Face challenges.

The Mingming team commented on the central bank’s MLF interest rate increase, saying that interest rates will be raised! The policy interest rate was raised for the first time in nearly six years. In addition, considering that deleveraging is still on the way and the Federal Reserve's gradual interest rate hikes are also unanimously expected, the bond market will inevitably enter a technical bear market.

Xu Hanfei, a bond analyst at Guotai Junan, analyzed that the central bank’s signal to raise interest rates is to guide commercial banks’ expectations and to warn commercial banks that if they do not provide credit steadily or control the scale of credit, they are likely to face more serious problems. Drastic regulation.

Stock traders and house buyers should be careful!

Now, the central bank has raised interest rates for the first time in six years, which will also have a financial and psychological impact on the stock and property markets.

Guo Lei, chief macro analyst of GF Securities, believes that the reason why MLF operating interest rates are rising is because they are afraid of your wild imagination. The temporary RRR cut in the early stage was interpreted by some optimistic market participants as a release of water, so we might as well form a de facto "rate increase and RRR cut" to offset it. The second is that I'm afraid you will mess around. If credit reaches another 3 trillion yuan in January, the tone of entity deleveraging throughout the year will be completely undermined, so we will raise our expectations for borrowing costs as a warning.

As for the real estate market that the public is most concerned about, CITIC Securities clearly stated that the domestic real estate market has shown signs of heating up recently, and housing prices in first-tier cities have once again shown an upward trend. Combined with the still large credit data and real estate prices in December last year, Investment has hit new highs, and it is necessary for monetary policy to appropriately guide the rise in medium- and long-term interest rates to curb real estate bubbles.

In addition, there is another news worthy of attention: According to Caixin reports, the relevant departments of the China Insurance Regulatory Commission have recently intensively interviewed the responsible persons of 15 insurance companies, including 9 universal insurance companies for rectification. People are required to unite the front and reduce liability-side costs during the "good start" period.

Well-known financial commentator Liu Xiaobo gave his opinion on this news. He believes that the tight currency situation in 2017 has been determined, and it is difficult for asset prices to soar. If the rate of return promised by insurance companies is too high, it will cause "Increasing costs on the liability side" will cause big trouble in the future. This shows that according to the expectations of the China Insurance Regulatory Commission, interest rates will gradually rise in 2017!

China’s real estate market has undergone four major changes today:

First, the relationship between supply and demand has been reversed. Except for a few cities, such as Beijing, supply and demand are basically balanced in more than 90 cities, and real estate is the most important. The history of good investment products is coming to an end;

The second is the reversal of economic and monetary cycles. In the past 18 years, the cycle of China's real estate and the cycle of China's economic growth have overlapped and exerted their effects. China is in an unprecedented acceleration of monetization. In the process, one result of monetization is the accumulation of real estate bubbles, which is the case in many countries, but this cycle is ending;

The third is the reversal of the population cycle, which China has basically said goodbye to The demographic dividend of the past will lead to a turning point in the absolute decline of China's population in the near future. The housing boom caused by the two largest baby boomers, those born in the 1980s and 1990s, is ending. In the future, China's housing demand will be far lower than the amount hyped by developers. ;

The fourth is the reversal of international capital inflows. With the end of China's high economic growth cycle, international capital has slowed down its inflow into China and even flowed out of China. The result is that the end of the unilateral appreciation of the RMB has begun to flow out. China's asset prices will face revaluation.

These four changes will also become important factors in the changes in China's real estate industry.

Goldman Sachs Gaohua: China's property market has entered a downward cycle, and price reductions will last 6-9 months

Goldman Sachs Gaohua analyst Wang Yi said that the market has cooled down after the introduction of regulatory policies. . The recent regulatory measures implemented by the government to curb the rapid rise in housing prices are not much different from previous rounds of regulation. The main difference is that the implementation of this round of regulation is the most stringent in history. The market has subsequently cooled down rapidly, and real estate sales have dropped rapidly.