Since April, the domestic bond market has significantly strengthened. Taking the yield of 10-year treasury bond as the observation index, public data shows that it rapidly declined from 1.81% on April 1 to 1.63% on April 7. Although there was a slight recovery on April 8 and 9, it closed at 1.66% and 1.65% respectively, but it is still in the low range. Industry analysis shows that the strengthening of the bond market in this round is due to the resonance of multiple factors, including the strengthening of market risk aversion and the increasing expectation of reserve requirement ratio cuts and interest rate cuts. The People's Bank of China (hereinafter referred to as "the central bank") has repeatedly stated that "it will cut the reserve ratio and interest rate at the right time according to the economic and financial situation at home and abroad and the operation of financial markets". With a series of questions such as whether the current reserve requirement ratio and interest rate cuts have the conditions, when they will be implemented, and what impact they will bring, the reporter interviewed five "CEOs" to discuss together. Deng Haiqing, Deputy General Manager and Chief Investment Officer of AVIC Fund, stated that the recent strengthening of the domestic bond market is related to two factors: firstly, the increased market risk aversion triggered by external adverse effects, and secondly, the market's expectation of the central bank loosening monetary policies such as reserve requirement ratio cuts to hedge against external adverse effects and stabilize growth. Against this backdrop, bond market sentiment has been boosted, with a rapid decline in yields. Wang Qing, the chief macro analyst of Oriental Jincheng, believes that the expected rise of reserve ratio and interest rate reduction is the main driving factor for the rapid decline of the yield of 10-year treasury bond bonds in this round. In fact, since the beginning of this year, the central bank has repeatedly stated that it will "cut reserve requirements and interest rates at the right time". Pan Gongsheng, governor of the People's Bank of China, said at the press conference on the economic theme of the Third Session of the 14th National People's Congress on March 6: "At present, the deposit reserve ratio of financial institutions is 6.6% on average, and there is still room for the downward trend. There is also room for the downward trend in the interest rate of funds for the structural monetary policy tool provided by the Central Bank to commercial banks.". So, from the current internal and external environment, do we have the conditions for reducing reserve requirement ratios and interest rates, and when will they be implemented? Regarding this, Wu Chaoming, Chief Economist of Caixin Financial Holdings, believes that from the current perspective, the pace of the central bank's reserve requirement ratio and interest rate cuts may accelerate. On the one hand, insufficient domestic demand is the main contradiction in China's current economy, and external adverse effects will objectively slow down external demand. The anti cyclical policy to expand domestic demand needs to be further strengthened. On the other hand, the conversion of some external demand to domestic demand will further increase domestic supply, exerting downward pressure on prices. Promoting a reasonable rebound in prices is an important consideration of this year's monetary policy, and the pace of monetary policy needs to be appropriately advanced. In addition, the downward pressure on the US economy has increased, the probability of recession has increased, and the US dollar may weaken, easing domestic policy constraints. However, Wu Chaoming stated that in the specific implementation timing of reserve requirement ratio and interest rate cuts, multiple factors need to be balanced. It is expected that the focus of monetary policy will shift from risk prevention in the first quarter to stable growth in the second quarter, with reserve requirement ratio cuts first and interest rate cuts later. Deng Haiqing believes that there are certain conditions for reducing reserve requirement ratios and interest rates at present, but there are also some constraining factors. For example, the current net interest margin pressure on banks is relatively high, and if interest rates are directly cut, it may further squeeze bank profits. Overall, there is still room for further easing of China's monetary policy, but when to lower reserve requirement ratios and interest rates needs to be further evaluated based on internal and external economic and financial conditions, as well as adverse external impacts. Li Chao, Chief Economist of Zheshang Securities, believes that after the external adverse effects increase, the central bank's monetary policy target may shift from "financial stability" to "economic growth", and the probability of reserve requirement ratio cuts in April will significantly increase. The central bank's release of long-term liquidity through reserve requirement ratio cuts is beneficial for hedging against external shocks that disrupt the domestic economic cycle. According to Wang Qing's analysis, taking into account the current changes in the external economic and trade environment, the trend of the domestic real estate market, and the price level, the conditions for "choosing the opportunity to lower reserve requirements and interest rates" in the second quarter are ripe, and the implementation time may be advanced to April. It is expected that the magnitude of this round of interest rate cuts may reach 0.3 percentage points, equivalent to the full year level of 2024; The reserve requirement ratio reduction may reach 0.5 percentage points, releasing about 1 trillion yuan of long-term funds. Zhang Xu, Chief Fixed Income Analyst at Everbright Securities, believes that currently, financial institutions can be guided to further strengthen their financial support for private and small enterprises by reducing the interest rates for agricultural and small loans, expanding the amount of re loans, and other means, to help these enterprises smoothly overcome the impact of external adverse effects. At present, the one-year agricultural and small-scale refinancing loan interest rate is 1.75%, while the 7-day reverse repurchase interest rate is 1.50%. The interest rate difference between the two is 25 basis points, which is at a relatively high level in recent years and objectively has room for downward adjustment. Two tools to support the capital market will further strengthen their efforts. Currently, if a significant reduction in reserve requirement ratio and interest rates is implemented, it can lower the loan interest rates for domestic enterprises and residents, enhance the lending capacity of banks, expand investment and consumption, and hedge against the impact of slowing external demand. At the same time, the reduction in reserve requirement ratio and interest rates will release a strong signal of stable growth, help boost social confidence, and stabilize market expectations, "said Wang Qing. In addition, the liquidity release and financing cost reduction brought about by reserve requirement ratio and interest rate cuts will also have a certain boosting effect on the stock market. Deng Haiqing stated that the reserve requirement ratio and interest rate cuts have boosted the stock market, mainly through three ways of transmission: first, improved liquidity, and the funds released by the reserve requirement ratio and interest rate cuts may partially flow into the stock market, such as high growth technology and consumer sectors; The second is the increase in valuation, with the decline in risk-free interest rates driving up the valuation of equity assets, benefiting growth stocks more; The third is the restoration of profit expectations. The decrease in financing costs will improve the profit expectations of enterprises, especially in interest rate sensitive industries such as real estate and infrastructure. It is worth noting that on April 8th, Central Huijin Company announced that it will continue to increase the size and intensity of its ETF holdings. Subsequently, the spokesperson of the People's Bank of China expressed support for Central Huijin Corporation to stabilize the capital market when asked by reporters. The central bank firmly supports Central Huijin Corporation in increasing its holdings of stock market index funds and providing sufficient refinancing support to Central Huijin Corporation when necessary, resolutely maintaining the stable operation of the capital market. In recent years, the central bank has repeatedly emphasized the need to support the stable development of the capital market and maintain its stable operation. In September last year, the central bank also created two tools to support the capital market for the first time, namely the Securities, Funds, and Insurance Company Swap Facility (hereinafter referred to as "Swap Facility") and the Stock Repurchase Increase and Re lending. Both of the above tools have countercyclical adjustment properties. When the stock market oversold or the stock price is undervalued, industry institutions, listed companies, and major shareholders have a strong willingness to buy, and the usage of both tools will be relatively large; When the stock price rises and liquidity recovers, the cost of repurchasing and increasing holdings by listed companies and major shareholders will increase, and the necessity of industry institutions' bond swap financing will also decrease, resulting in a natural decrease in the use of tools. The internal stability mechanism established from this is conducive to playing a role in correcting capital market overshoots, stabilizing market expectations, and supporting the long-term healthy development of the capital market. In Deng Haiqing's view, in order to support the stable operation of the stock market, the central bank can further expand the scale of swap convenience and stock repurchase and refinancing, and provide more refinancing to Central Huijin Company to support its stability in the capital market. "In the near future, the yield of 10-year treasury bond has obviously declined, and is at a low level, or has overdrawn to a certain extent to reduce reserve ratio and interest rates." Wang Qing believes that in order to maintain the stable operation of the capital market, in addition to the central bank providing refinancing support to Huijin, the central bank may focus on two special tools for the capital market. Furthermore, it is not ruled out that the central bank may establish new structural monetary policy tools based on actual needs. (New Society)