Who is buying and who is selling in this round of the "bond bull" market?

Since early June, the long-term bond yield has broken through after a long period of sideways volatility, especially on June 14th when the 30-year government bond yield fell below 2.5% for the first time since April 26th, a key psychological level in the market, indicating a strong bond market sentiment. We have summarized the performance and strategic focus of various institutional secondary markets in this round of bull market.

Looking at key bond types:

(1) 10-year government bonds: Main buyers include securities firms; rural commercial banks are the main sellers. Focusing on government bonds with maturities between 7-10 years (including 10 years), we can see that rural commercial banks have played a major role as sellers in the secondary market for 10-year government bonds, while buyers are more diversified, with participation from securities firms, funds, and other asset management products. However, the net buying scale is not stable and no major pricing party has emerged. Looking at the latest two weeks of data, commercial banks have significantly increased their allocation to 10-year government bonds, and funds have gradually increased their participation.

(2) 30-year government bonds: Main buyers are funds and insurance companies, with rural commercial banks and national joint-stock city commercial banks as the main trading counterparts. Focusing on government bonds with maturities between 20-30 years (including 30 years), we can see that the seasonal increase in insurance allocation at the end of the quarter may continue to support the rally in the ultra-long end; funds continue to increase net purchases, showing a tendency to extend duration directly through 20-30 year ultra-long varieties compared to net buying and selling of 7-10Y government bonds; various types of asset management products also show a tendency to increase holdings of ultra-long government bonds. Overall, the pricing power of buyers is still mainly in the hands of funds and insurance companies.

From a duration perspective, starting from late May, funds have shown a significant tendency to lengthen the duration of interest rate bond assets, creating a significant scissor difference with the duration changes of rural commercial banks' interest rate bond assets. The marginal duration fluctuation of funds' interest rate bonds is more pronounced, and it is not completely positively correlated with interest rate trends. Due to the strong allocation attributes of funds to the short end, it can be used to judge the buying and selling tendencies of funds towards long-term bond assets. Starting from late May, the marginal duration of funds' interest rate bonds has been continuously increasing, indicating a higher preference for long-term bonds.

Looking at the main institutions: Due to the strong primary subscription and secondary selling attributes of large banks, commercial banks, and city commercial banks, we focus on the secondary transaction preferences of institutions such as funds, rural commercial banks, insurance companies, and wealth management. Overall, funds prefer long-end policy financial bonds, insurance companies prefer ultra-long local government bonds and government bonds, wealth management prefers time deposits, rural commercial banks prefer time deposits and medium to short-term government bonds, asset management products are involved in varieties with strong trading attributes, and overseas institutions mainly prefer time deposits and medium to short-term policy financial bonds

(1) Funds: Significant increase in demand for long-term bonds. On the one hand, this is manifested by a substantial increase in holdings of 7-10 year treasury bonds, especially policy financial bonds; on the other hand, there is a clear increase in holdings of ultra-long-term treasury bonds and local government bonds with weaker liquidity. Previously, we mentioned that when funds are conservative, their core strategy is to increase holdings of medium to short high-grade credit bonds and certificates of deposit. However, since June, the increase in holdings of credit bonds by funds has significantly weakened, indicating a stronger demand for high-yield strategies in the current period.

(2) Rural Commercial Banks: Significant increase in holdings of short-term bonds and certificates of deposit within 1 year, with a focus on realizing returns from long-term bonds. In May, interest rates were volatile, and rural commercial banks significantly bought long-term bonds to adjust their holdings structure by reducing purchases of short-term bonds and certificates of deposit. Since the decline in interest rates in June, rural commercial banks have started to realize returns.

(3) Insurance: Significant increase in holdings of long-term and ultra-long-term national bonds, with a slight decrease in allocation to certificates of deposit and local government bonds. The main reason behind this is the significant growth in end-of-quarter insurance policy income, leading to rapid growth in scale, which increases the demand for high liquidity, high-yield treasury bonds. This demand may decline and become flat after the quarter-end.

(4) Wealth Management: Under the pressure of funds returning to the table at the end of the quarter, the allocation demand has decreased, slowing down the purchase of certificates of deposit and credit bonds and treasury bonds within one year; however, there is a slight opportunity to participate in trading 7-10 year long-term treasury bonds. This end-of-quarter month, wealth management scale faces bidirectional incremental disturbances. On the one hand, changes in the calculation method of the value added of the financial industry weaken the demand of banks for end-of-quarter scale expansion. On the other hand, from April to May this year, the scale of wealth management grew significantly, and the pressure of deposit return at the end of this quarter may be greater than in previous years. Currently, the phenomenon of reducing the scale of wealth management at the end of the quarter is still evident, with a focus on reducing purchases of certificates of deposit on the asset side.

In summary, the current market trend is mainly driven by improved sentiment in funds, and current funds have a strong demand for extending duration, with potentially more incremental trading funds in the ultra-long end.