The introduction of ultra-long special treasury bonds has recently marked a significant trend in the investment landscape, capturing the attention of investors since its launchOn May 20, banks made these unique financial instruments available for personal investors, and on their very first day, they were completely sold out, indicating a strong demandFollowing their debut on the market on May 22, the bonds displayed a turbulent trading pattern, prompting a renewed surge of interest from investors.

Industry experts are attributing the dramatic fluctuations in the trading prices of these treasury bonds to the prevailing market fervor coupled with a degree of irrational investor behaviorAs more ultra-long treasury bonds flood the market, the sentiment on the secondary market is likely to remain volatileConsequently, investors need to approach their portfolio allocations with rational foresight while keeping an eye on financial products that include these bonds.

In just two days of trading, the newly issued ultra-long treasury bonds experienced a roller-coaster ride of price movements, swinging from substantial gains to swift corrections

On the first trading day, May 22, the bonds faced temporary halts twice due to their rapidly escalating pricesFor instance, the Shenzhen Stock Exchange reported that "Special Treasury 2401" closed with a 19.70% increase, peaking at an impressive 23% during tradingMeanwhile, the Shanghai Stock Exchange's counterpart, "24 Special Treasury 01", recorded a closing increase of 1.32% with a high of 25% during the session.

Both exchanges prudently issued warnings about investment risks and encouraged rational investing practices in the face of such volatilityThe inaugural issuance of these ultra-long special treasury bonds saw a total volume of 400 billion yuan, with a maturity of 30 years and a coupon rate set at 2.57%, disbursing interest biannually.

Analysts from Zhongyou Securities pointed out that the market enthusiasm and speculative trading activities were two key drivers of the extreme volatility displayed on the bonds' first trading day

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However, the following day, a price correction took place, as indicated by a notification from the Shenzhen Stock Exchange on May 23. The price of "Special Treasury 2401" dropped more than 10% below its previous closing figure during the session.

Despite these fluctuations, general optimism towards ultra-long special treasury bonds remainsGuotai Junan stated in their research report that the introduction of special treasury bonds to personal investors might temporarily uplift the mood within the bond marketThe easing of monetary conditions due to tax period pressures could also contribute to a stabilized market environmentWhile the interplay of bullish and bearish influences is limited currently, bond futures are expected to hover around established price points, advising investors to be cautious and vigilant to potential disruptions in market sentiment.

The overwhelming demand from investors for these ultra-long special treasury bonds became evident on the very day they were released

On May 20, only select banks opened up purchase quotas for individual investors, all rapidly selling out, signifying a strong interest in these new instrumentsMany investors have remarked that in an environment of declining interest rates, products offering stability coupled with attractive yield expectations are diminishing in numberThough the yields on the newly issued treasury bonds may not be extraordinarily high, their stability and regular interest payments present a favorable option for those with a low-risk profile.

He Fan, a senior macro researcher at Industrial Bank, emphasized that ultra-long special treasury bonds provide a new asset allocation avenue for personal investors, especially amidst falling bank deposit interest rates and the loosening of rigid repayment structures in bank wealth management productsThe issuance by the Ministry of Finance ensures that these bonds offer secure, consistent long-term investment returns that appeal to investors wishing to hold for the long term or engage in secondary market trading—making them especially attractive to risk-averse individuals.

Furthermore, Cao Zhe, the Chief Investment Officer at Aiwen Zhili, remarked on the strong inclination of individual investors toward these bonds

As personal wealth grows alongside economic development, the demand for diverse investment options amongst investors continues to riseThe inherent stability and low-risk nature of ultra-long special treasury bonds closely align with this growing demand profile, thus enhancing their appeal.

Cao Zhe further elaborated that the ultra-long maturity of these bonds allows for a longer holding period, thus mitigating risks from short-term market fluctuationsThe introduction of these bonds diversifies available investment choices for personal investors, thereby enriching their asset allocation strategiesWith more tranches of ultra-long special treasury bonds expected to launch, individual investors are expected to maintain their enthusiastic engagementThe Ministry of Finance has planned to issue a total of 1 trillion yuan in ultra-long special treasury bonds within the fiscal year, with maturities spanning 20, 30, and even 50 years, spread across seven, twelve, and three issuing events respectively, from May to mid-November.

Analysts at Zheshang Securities highlight that with an uptick in issuance frequency for ultra-long special treasury bonds in 2024, three new 30-year treasury bonds will be released in May, July, and September, which may shift investor focus toward the differential dynamics between new and existing securities, as well as their inter-market price correlations.

The subsequent issuances of ultra-long special treasury bonds are anticipated to elevate liquidity in the long-duration segment, further enhancing investment appetites among market participants

Huatai Securities forecasts that by the end of this issuance cycle, the remaining balances for 20, 30, and 50-year treasury bonds will likely reach 300 billion yuan, 919 billion yuan, and 215 billion yuan, respectivelyHowever, the path to achieving an actively traded status in these bonds will necessitate a concerted expansion in both the size and the complexity of derivative tools associated with them.

Zheshang Securities adds that the first release of 30-year treasury bonds alongside their subsequent issuances is expected to amplify uncertainty on the primary issuance market, possibly sparking volatility on the secondary trading front.

For individual investors, an alternative strategy to participate in ultra-long special treasury bonds involves leveraging wealth management products tied to these underlying assetsAccording to Cao Zhe, the issuance of ultra-long special treasury bonds opens new investment channels for financial institutions, which must in turn develop aligned wealth management products that cater to diverse investor demands

This necessitates focusing on creating products that meet varying appetites for risk alongside differing investment horizons, making it a notable area of interest.

Xu Wenchao, a managing director at Fitch Ratings for Asia-Pacific financial institutions, noted that with regulators guiding continued declines in deposit rates and halting manual interest subsidies, a clear trend is emerging wherein funds are a return on investment increasingly divert away from deposits toward wealth management products—particularly as corporate funds visibly swell into these offeringsThe demand for stable, low-volatility wealth management products continues to dominate investment interests, and ultra-long treasury bonds contribute to fulfilling this market need not only by enriching product offerings but also by addressing the dwindling issuance of city investment and real estate bonds.

In a similar vein, He Fan reiterated that as these ultra-long special treasury bonds are continuously rolled out this year and beyond, the influx of supply is poised to enhance the liquidity of these long-term bonds significantly

In the prevailing climate of an "asset shortage," financial institutions can capitalize on ultra-long treasury bonds to extend the duration and bolster portfolio yields; this flexibility may also enable innovative trading strategies along the yield curve.

He Fan pointed out that in the context of insurance companies and similar institutions, the longer maturity profile of ultra-long bonds aligns suitably with their longer liabilitiesHowever, it’s crucial to recognize that compared to mid- to short-term treasury bonds, the length of ultra-long bonds means they carry a greater risk of price volatility in rising interest rate scenariosTherefore, the potential interest rate risk associated with these instruments deserves careful monitoring.

Cao Zhe concluded by saying that in the current environment characterized by an "asset shortage," ultra-long special treasury bonds remain attractive thanks to relatively higher yields despite their lesser liquidity compared to standard bonds, all while benefitting from the security of state backing