The bond market in August experienced two phases: a flat period in the first half of the month and an upward period in the second half of the month. The market oscillating and finishing in the first half of the month was mainly due to the limited increase in market information and the release of risks to a large extent after the continuous decline in April to July. In the second half of the month, the bond market rose more, and the 10-year CDB had reached its previous high. The main reason may be the shortage of funds and the short-term relaxation of Sino-US relations to a certain extent. In the past two weeks, due to the massive issuance of bonds in the primary market, the huge amount of maturing funds, the payment and the end of the month, and other factors, the open market has a large funding gap. Although the central bank has made more investments, often reaching 100 to 200 billion yuan a day, but the funding gap is too large, overnight and seven-day interest rates continue to rise, and the short-term treasury bonds and certificate of deposit interest rates are gradually rising. After the short-term interest rate rose, the long-term interest rate rose passively, and the yield curve showed a flattening upward trend. During this period, credit bonds performed better than interest rate bonds, showing a certain allocation value, and their prices were relatively firm.

Looking to the future market, there are several points of concern. First of all, the trend of capital prices is still the focus of market entanglement. Since April this year, capital has been rising all the way, and the current capital price has exceeded the operating price of the open market. This year's short-end funding prices have fluctuated greatly, and most market participants are at a loss as to the central bank's consensus funding level. Therefore, once there is a shortage of funds, it is easy to panic about the central bank's monetary policy shift. From the perspective of the central bank’s attitude, maintaining interest rate policy space, maintaining financial stability, and real estate leverage are more critical. In addition, after financing through a large number of local bonds and loans in the first half of the year, there is little pressure to complete the annual social financing target, and further relaxation Necessity declined.

Secondly, the domestic economic recovery is currently on the whole well, with structural divergence. Mainly manifested in the new situation after the epidemic with hot production, cold consumption, hot assets, and weak inflation. The short-term recovery momentum is good, but there is still pressure in the long-term, especially after the unconventional fiscal and monetary policies in response to the epidemic this year are withdrawn next year, there is still a risk of the economy going down again. We believe that the center of long-term GDP growth will decline, so that the center of future bond yields may be lower than the level before the epidemic. However, real estate and infrastructure in the short-term investment field continue to improve, which has made up for the downturn in consumption. If this momentum continues to strengthen in the short term, it will increase market risk appetite and continue to put pressure on the bond market. Economic highs and turning points are the key factors that determine the subsequent adjustment of the bond market during the year.

In addition, the impact of the Sino-US game on the market has gradually faded. As the Democratic Party takes the lead in votes, the probability of being elected gradually increases. The normalization and long-termization of the Sino-US game is a predictable direction, and its impact on the short-term market may become smaller and smaller. However, the Fed’s policy and the trend of U.S. bonds still have a greater impact. If U.S. bond interest rates continue to rise, it may change the rate of the dollar’s global spillover, and exchange rate changes will affect the pace of foreign capital allocation. However, the Fed stated that it has a higher tolerance for inflation, indicating that the balance sheet reduction will not come too soon. The second half of the year will still be the "honeymoon period" for the global financial market. As a country with a controllable epidemic and relatively high growth rate, China will continue to benefit from capital inflows.

In summary, the bond market is subject to adjustment pressure in the short-term due to the central bank’s hawkish attitude, increased risk appetite, and tight capital. However, we are still optimistic about its long-term allocation value, especially the medium-term credit bonds, which are more expensive than the future economic center. Reasonable, reflecting a better configuration value.