Market volatility increases, 30-year Treasury bond futures hit a new intraday low.

Amid rising international oil prices strengthening market expectations of re-inflation, the bond market has recently experienced significant fluctuations. On March 16, 30-year government bond futures hit a new low for the year during trading, increasing bond market volatility. Recently, the yield curve has shown a “short end down, long end up” divergence pattern.

Clear Divergence in the Bond Market

As of the close on March 16, 30-year government bond futures fell 0.43% to 110.63 yuan, 10-year futures declined 0.11%, 5-year futures dropped 0.08%, and 2-year futures decreased 0.04%.

Meanwhile, internal divergence within the yield curve has become apparent, with short-term interest rates continuing to decline and long-term rates rising significantly. Market participants say this trend is related to liquidity conditions and also reflects differences in trading behaviors among various institutions.

“Last week, the bond market already showed signs of divergence, with short-term rates falling and long-term rates rising. This divergence has further intensified this week,” said Yang Yewei, Chief Fixed Income Analyst at Guosheng Securities, in an interview with Shanghai Securities News.

Yang believes that the current divergence between long and short-term rates is mainly due to different trading behaviors of institutions. The short-term market is primarily influenced by bank liquidity management, while the long-term reflects market expectations for medium- and long-term economic and interest rate environments. In the short term, these trends may continue to diverge, but in the medium term, convergence is still possible.

Since the beginning of the year, the growth rate gap between bank deposits and loans has widened noticeably. Data shows that from January to February, RMB deposits increased by about 520 billion yuan year-on-year, while loans increased by about 530 billion yuan less than last year, with loan growth dropping from 6.4% in December to 6.0% in February.

“This indicates that while bank funds are increasing, the supply of investable credit assets is insufficient. In this situation, banks tend to absorb liquidity by increasing interbank lending, thereby maintaining a loose liquidity environment,” Yang said.

Re-inflation Expectations Heat Up

Market participants believe that this bond market adjustment is also closely related to rising re-inflation expectations.

Recently, international oil prices have surged rapidly. Against this backdrop, the market has experienced a period of sluggish growth with both stocks and bonds under pressure, a phenomenon known as “stock and bond weakness.” Market participants note that this is quite different from last year’s trade friction period, when stocks were weak and bonds were strong, and the extent of bond market correction has increased.

The rise in oil prices has heightened concerns about re-inflation. Guojin Securities’ fixed income team stated in a research report that as oil prices push up upstream prices, corporate profitability may improve, and credit cycles could show signs of recovery. If the transmission of oil prices to mid- and downstream prices continues, inflation’s impact on interest rates could extend from the first half to the second half of the year. Currently, this risk scenario is not fully priced into the market.

From a fundamental perspective, institutions are beginning to pay attention to changes in corporate credit cycles. Guojin Securities’ fixed income team noted that the second rebound signal for medium- and long-term corporate loans has appeared within three months, confirming that a bottoming process is underway. Meanwhile, high oil prices support industrial product prices, and the positive feedback loop among PPI, corporate profitability, and corporate credit is gaining momentum, exerting some pressure on the bond market.

Lü Pin, Chief Fixed Income Analyst at Zhongtai Securities, told Shanghai Securities News that rising oil prices may accelerate the timing of PPI turning positive, with the window for re-inflation expected to shift from mid-year to the first quarter, reinforcing the bearish outlook for bonds.

Liquidity Stability as a Key Variable

Looking ahead, market participants believe that changes in liquidity will be a key factor influencing bond market trends.

In a recent research report, Huaxi Securities stated that the core focus now is on the stability of liquidity. Recently, the central bank announced arrangements for 3-month and 6-month repo operations, which netted liquidity withdrawals of 200 billion yuan and 100 billion yuan respectively. This is the first net withdrawal of repo funds since May 2025.

Market participants suggest that this move aims to prevent excessive liquidity easing in the interbank market. Attention will continue to be on liquidity conditions in mid to late March. If liquidity remains stable, the bond market is likely to stay volatile but relatively steady; if liquidity fluctuates, the pace of correction could accelerate further.

Regarding interest rates, the current bond market lacks strong bullish factors. Coupled with increased pressure from end-of-quarter performance assessments and some institutions’ profit-taking needs, market volatility may intensify. Huaxi Securities’ report indicates that the 10-year government bond yield could potentially break above 1.85%.