On February 25th, the People's Bank of China launched a 300 billion yuan Medium Term Lending Facility (MLF) operation, which reduced the maturity amount by 200 billion yuan compared to 500 billion yuan, and maintained a bid rate of 2.00%. This operation of reducing the amount and continuing the parity is in line with market expectations. Industry insiders believe that the process of replacing MLF with buyout reverse repurchase will continue in the future. This volume reduction sequel has attracted market attention to the direction of funding. At present, interest rates in various major markets are generally rising, and the funding situation is maintaining a tight balance. Further observation is needed to determine any potential adjustment signals. On February 25th, the People's Bank of China announced that in order to maintain sufficient liquidity in the banking system, a 300 billion yuan MLF operation will be carried out on the same day with a term of one year. The highest bidding rate is 2.20%, the lowest bidding rate is 1.80%, and the winning bid rate is 2.00%. After the operation, the MLF balance was 4094 billion yuan. In February, the MLF due amount was 500 billion yuan. After renewing for 300 billion yuan on the 25th, this month's MLF volume reduction operation was 200 billion yuan. Industry insiders say that this is in line with market expectations, and it is expected that the process of replacing MLF with buyout reverse repurchase will continue in the future. In fact, it is not surprising that MLF has experienced a decrease in volume. Huachuang Securities Investment Advisory Department stated that previously, the central bank had indicated that the position of MLF in the monetary policy tool system had declined. Looking back at the situation in the past few months, the scale of MLF advertising has indeed shown a decreasing trend. Wang Qing, Chief Macro Analyst of Dongfang Jincheng, believes that considering that the central bank has launched a 1.7 trillion yuan buyout reverse repurchase operation in January 2025, it is equivalent to releasing large-scale medium-term liquidity in advance to cope with the large MLF maturity in February 2025. In fact, this is the basic operating mode since October 2024, which is to carry out large-scale buyout reverse repurchase, continuously replace MLF, and dilute the policy interest rate color of MLF operating rate. This also means that although the MLF has continued to shrink since October 2024, the central bank has not reduced its medium-term liquidity injection. "Although the People's Bank of China recently suspended the purchase of treasury bond bonds in the secondary market, it will release liquidity through large-scale buyout reverse repo, moderate renewal of MLF and other policy tools to keep the medium-term market liquidity in a sufficient state, and to support banks to increase credit supply at the beginning of the year, support government bond issuance, and stabilize market expectations. Looking ahead, the current MLF balance is still relatively high, and the process of replacing MLF with buyout reverse repurchase will continue in the future Wang Qing added. Analysts believe that maintaining a tight balance in terms of funds indicates a policy orientation in the MLF volume reduction operation. At present, the financial situation is maintaining a tight balance, and future adjustment signals are still to be observed. According to the reporter's understanding, since the beginning of the year, the policy interest rate (7-day reverse repo rate) has remained unchanged. Interest rates in various major markets generally rose, among which the yield to maturity of one-year commercial banks (AAA grade) interbank certificates of deposit is moving closer to the MLF operating rate, and the yield of 10-year treasury bond bonds has also risen significantly. As of the close on the 25th, the one-year AAA rated interbank certificate of deposit interest rate was reported at 1.985%, while the one-year MLF interest rate of the central bank was about 2%. The impact of the MLF reduction on the funding aspect has sparked industry reflection. Huachuang Securities' investment advisory department analyzed that one of the reasons for the decrease in MLF volume in the first few months was its relatively high cost. However, the current interbank deposit interest rate is already higher than the MLF interest rate, theoretically, the market demand for MLF should be at a relatively high level. However, the reality is that the MLF still shows a trend of contraction, indicating that the central bank does not tend to be overly loose in its operational attitude. The research team of CITIC Securities analyzed that after the Spring Festival, the overall balance of funds remained tight, and under short-term suppression, the overall performance of the bond market was also greatly disturbed. (New Society)