中信證券股份有限公司 Mingfeng Wang


　　9209Investment Highlights:v Open market operations (“OMO”s): the size of Repos started to expand. Last week, thePeople’s Bank of China (“PBoC”), or the Chinese central bank, continued its suspension of theoffering of the central bank notes for the 10th

　　week in a row. However, the size of Repos, totaling Rmb60 bn, was much larger than that in the week before last. With shorter terms, Repos could postponethe maturity days of the current capital by one to three months, effectively increasing the size offunds that are to mature in the following months, and hence reserving certain room for an adjustmentto the monetary policy. Given the current market landscape, if the PBoC restarts the offering of 1-ycentral bank notes, it will be trapped in the predicament of deciding whether to change interest rates.

　　Therefore, the central bank could as well think about such offerings only after seeing certain pickupof interest rates on the secondary market.

　　v Money market: better-than-expected recovery of liquidity. The speed of this round of liquidityrecoveries was faster than expected. The rapid fall of the interest rate on 7-d products to below 3.0%shows that market liquidity is abundant. This situation might have certain connection with therelatively fast deposit backflow. According to our follow-on visits to the grassroots of late, theexpected yields on banks’ wealth management products plunged significantly in February, showingthat the pressure on commercial banks to attract deposits significantly alleviated vs. the previousperiod. In March, with the impetus to hedge against their loan sizes, commercial banks mightsqueeze the size of their funds on the bond market or in the financial system. Repo rates areexpected to face certain upside, e.g., in the near term, the 7-d Repo rate will be likely to fluctuatebetween 3.0% and 3.5%.

　　v Primary and secondary markets of interest rate products. Last week, five interest rate productsand one credit product were auctioned publicly. Driven by liquidity, the auction results of all bondswere in line with market consensus or slightly better than expected. In the week, all the yields oninterest rate products on the secondary market staged a declining tendency. Furthermore, the falls ofshort-end yields were more drastic than those of mid- to long-end ones, while the yield curvesteepened somewhat; among 3-y and 5-y mid-term notes, the yields on AA-class products witnessedthe most significant drops; and as a whole, the yield curve steepened and showed a slidingpropensity.

　　v A brief comment on the macroeconomic data in February. Last week, the macroeconomic,inflationary, foreign trade and financial data in February were released by various governmentalagencies respectively. According to the data, the declining trend of the Chinese economy wasconfirmed, while no recovery started despite the previous signs shown by the purchasing managers’index (“PMI”); the lower-than-expected YoY consumer price index (“CPI”) implied that the CPIinflationary pressure somewhat eased; although credit data were poorer than expected, depositsgrew remarkably; and, factoring in the recent ample liquidity, the size of incremental loans in Marchwill be likely to enlarge somewhat.

　　v Views about the trend on the bond market. While the economic growth in 1Q2012E will continuedecelerating, the YoY CPI growth rates will also keep sliding in the next few months. Given thatliquidity has become extremely ample, the bond market is expected to remain a “slow bull”. At leastbefore April and May, the overall risk will be basically under control. Meanwhile, endorsed by theirrelatively high yields to maturity, credit products will win investors’ favor. As a result, we reiterate ouropinion that “the yield curve will steepen, while credit products will outperform interest rate products”,still recommend short-term financing bills and middle- and low-class products, and suggest investorsto allocate municipal bonds.

　　v Primary market offerings. According to the public information as of 9 March 2012, a total of 30bond offerings will be launched this week, including two policy-oriented financial bonds (Rmb 35 bn),two commercial bank subordinate bonds (Rmb 2.4 bn), 15 short-term financing bills (Rmb 12.15 bn),five mid-term notes (Rmb 2.35 bn), four enterprise bonds (Rmb 3.9 bn) and two corporate bonds(Rmb 2.03 bn), with a planned offering size amounting to Rmb 57.83 bn.