Finance Associated Press, February 4 (edited by Yang Bin).In China's bond market, the era of high-yield bonds may be gone forever.
The high-yield bond market has ushered in the final chapter ...... this seriesWe have witnessed the bi-weekly turnover of the high-yield bond market rise from $20 billion in early 2021 to a peak of $50 billion at the end of 2022, and then continue to decline from mid-to-late September 2023 to the current record low of $4.8 billion. Huachuang Fixed Income said so in a recent research report, which made market participants feel quite emotional.
Since the fourth quarter of last year, driven by the "package of bonds"**, the high-yield bond market, which is dominated by urban investment bonds, has made great gains. However, the decline in yields has led to a sharp contraction in the stock and transaction scale of high-yield bonds, and the total turnover of high-yield bonds in the past two weeks has only reached 4.8 billion yuan, which is at the lowest quantile level in history. Institutions basically agree that the high-yield bond market will continue to contract, but in this context, high-yield bond investors still have a variety of choices, and short-duration sinking and extended duration strategies may coexist.
The high-yield bond index rose 10% last year, and the recent trading volume fell to a record low
In 2023, high-yield bonds have outperformed. According to the statistics of the rating agency China Chengxin International, benefiting from the slowdown in the release of credit risks, the support of high coupons and the compression of interest rate spreads brought about by favorable debt policies, the CCXI High Yield Bond Wealth Index has accumulated **10 throughout the year76%, significantly outperforming the Chinese bond (5.).02%) and the Credit Wealth Index (4.).69%）；On a quarterly basis, the yield of the high-yield bond wealth index is in order. 28%, with strong capital gains gains in the fourth quarter.
At the same time, the trading activity of high-yield bonds increased, and the scale of tail transactions increased. In 2023, the cumulative turnover of high-yield bonds with a yield of more than 6% will be 455 trillion yuan, an increase of 24 percent year-on-year10%。About ninety percent of the transactions are urban investment bonds, and the transaction scale of Shandong and Tianjin is in the order of 700 billion yuan, which is a popular area for market credit sinking. Transactions with an absolute net price deviation of 2% or more are concentrated in Shandong, Yunnan, Guizhou and other regions. Last year, the tail transaction size of 10% yield and above increased by 4721%, and the proportion of transactions increased by 087 percentage points to 954%。In terms of non-urban investment enterprises, Gemdale Group, Country Garden Real Estate and CIFI Group actively traded high-yield bonds.
However, driven by the "basket of bonds**", the decline in urban investment yields led to a sharp contraction in the stock and transaction size of high-yield bonds in the fourth quarter.
According to the statistics of Huachuang Fixed Income Zhou Guannan's team, the transaction amount of high-yield bonds has declined significantly since mid-to-late September. In the past two weeks, the weighted transaction yield was higher than 8%, and the total turnover of high-yield bonds with a remaining maturity of more than half a year was 480.6 billion yuan, at the lowest quantile level in history. In addition, the transaction price of high-yield bonds is mainly higher than 90% of the face value, and the transaction amount below 90% of the face value in the past two weeks is only 161.7 billion yuan, accounting for 66% of the total turnover.
Huachuang fixed income team pointed out that as the Spring Festival approached, the yield of high-yield urban investment bonds further fell to the range of non-high-yield bonds in the past two weeks under the continuous interpretation of the chemical bond policy and asset shortage, and the current scale of existing urban investment high-yield bonds has been greatly reduced compared with previous years, and the corresponding transaction scale of urban investment high-yield bonds has reached the lowest level since 2021. Real estate high-yield bonds may be affected by financing support policies such as operating property loans and whitelists for real estate projects, and the transaction scale has declined.
The high-yield bond market may continue to contract, with short-duration sinking and long-duration strategies coexisting
With the "promotion of the package of bonds" and the continuation of the asset shortage, it is basically the consensus of institutions that the high-yield bond market, dominated by urban investment bonds, will continue to shrink, but there are different views on the impact of the contraction of the high-yield bond market and the investment options of high-yield bonds in the future.
It is worth noting that Hua Chuang Fixed Income is one of the few fixed income teams in the market that regularly publishes high-yield bond research reports. Its high-yield bond market watch series has been updated every two weeks since 2021, witnessing the bi-weekly trading volume of the high-yield bond market rising from 20 billion yuan at the beginning of 2021 to a peak of 50 billion yuan at the end of 2022, and then continuing to decline to the current historical low level since mid-to-late September 2023.
Yan Ziqi, chief executive of Huaan Fixed Income, pointed out that the direct impact of the reduction of the scale of high-yield urban investment bonds lies in the fact that the decision-making of market investors will gradually converge, although it can improve the liquidity of various types of bonds, but it is also very easy to cause a "stampede" event at a special time. Subsequently, as the policy of chemical bonds moves from implementation to implementation, and finally plays a role, the scale of high-yield bonds may maintain a downward trend in the short term.
Looking ahead, another brokerage fixed income analyst told the Financial Associated Press that in the short term, under the continuation of the urban investment bond policy, the stock of urban investment high-yield bonds may gradually compress. The high-yield bond market also includes private enterprise real estate bonds, and the stock of the overall high-yield bond market may continue to decrease as the financing channels of private real estate bonds are blocked or will gradually withdraw from the credit bond market.
Yan Ziqi suggested that investors continue to adopt a short-duration sinking strategy and explore areas or entities with returns in the 1 to 2 year period; In the medium and long term, it is necessary to beware of fundamental, technical and financial factors that lead to fluctuations, and try to reduce possible valuation risks.
Huachuang fixed income team said that in the context of the continuous decline in short-term yields of urban investment and the reduction of high-interest urban investment bonds, it may be more common to obtain income by extending duration. At present, the market has begun to extend the duration to 2 years, and the 2-1Y term spreads of each grade have been fully compressed, and the 3-2Y term spreads have also been slightly compressed since mid-November. Considering that after the 2-1Y term spread compression in the past, the 3-2Y compression followed closely behind, the subsequent duration can be appropriately extended to 2-3 years to win income.
China Chengxin International suggests that investors with higher risk appetite can pay attention to high-yield real estate bonds, and there are short-term trading opportunities for high-yield real estate bonds with high market sentiment under favorable policies. However, under the new situation of major changes in the relationship between supply and demand in the real estate market, the effect and sustainability of policy implementation still need to be observed, and pay close attention to the risk of another thunderstorm of real estate companies that have completed the extension of bonds, as well as the debt continuation of real estate enterprises that are not out of danger but have greater debt maturity pressure, so as to avoid individual credit risk events that impact market confidence.
Finance Associated Press Yang Bin).