In the long-term perspective, the trend in the bond market depends on changes in net interest margins, real estate and exchange rate pressures. Commercial banks face an "impossible triangle", i.e., they cannot simultaneously profit-making entities, stabilize their capital adequacy ratio and invest in risky assets. Under such circumstances, commercial banks preferred to purchase treasury bonds and policy financial bonds that did not consume capital. The tendency of commercial banks to increase the allocation of treasury bonds and policy financial bonds has increased significantly in recent years, which is related to the "impossible triangle" problem they face.
The "impossible triangle" for commercial banks exists because concessions to entities affect net profits, maintaining a constant capital adequacy ratio requires a reduction in risk-weighted assets, and investing in risky assets increases risk-weighted assets. Capital growth of commercial banks, which is largely dependent on net profit growth, may come under pressure in the context of concessional entities. In addition, higher nominal interest rates globally and exchange rate pressures could also affect the downward movement of interbank interest rates, and the inability to alleviate the pressure on liabilities by lowering interbank interest rates.
In order to stabilize their capital adequacy ratios, commercial banks have no choice but to reduce their risk-weighted assets. This can be achieved by increasing the scale of investment in treasury bonds and government bonds, increasing the amount of loans to small and micro enterprises and residents, and actively downsizing. However, there are certain limitations and difficulties in each of these ways.
In the short-term perspective, the bond market may be at risk. In the past period, the bond market's "quick bull" phenomenon was driven by four major factors: the economic fundamentals fall, the interbank interest rate easing, the slowdown in bond supply and the sentiment level. However, these factors may reverse in the near term. Economic fundamentals may bottom out in the second quarter, interbank rates may rise due to exchange rate pressure, bond supply may accelerate after the two sessions, and sentiment levels may fall due to the equity market.
To summarize, from the long-term and short-term perspective, there are some opportunities and risks in the bond market. The "impossible triangle" problem faced by commercial banks makes bonds a better choice for them. However, in the short term, the bond market may face some disturbances and uncertainties. Therefore, investors need to consider various factors to make informed investment decisions.
