Core Viewpoint - The overall operation characteristics of the RMB foreign exchange swap and options market in the first half of 2025 show a rising trend followed by a range-bound fluctuation, with the one-year swap price fluctuating between -2400 to -1900 pips. The actual volatility of the RMB exchange rate has increased, while the implied volatility of at-the-money options has shown a phased trend but remained stable in trading center. In the second half of 2025, the narrowing of the China-US interest rate spread is expected to drive a rebound in the swap curve, while the implied volatility in the RMB options market is likely to remain low [1]. RMB Foreign Exchange Derivatives Market Review RMB Swap Market Review - In the first half of 2025, the RMB foreign exchange swap market experienced an initial upward trend followed by a range-bound fluctuation, with the one-year swap points trading between -2400 to -1900 pips [2]. - The first phase from the beginning of the year to mid-March saw a rapid rise in one-year swap points from -2400 pips to -1900 pips, driven by bearish sentiment towards the US dollar and US Treasury yields, alongside improved international balance of payments and positive expectations for China's economic recovery [3]. - The second phase from late March to the present has seen a gradual decline in upward momentum, with one-year swap points oscillating around -2050 pips, influenced by the US's unexpected tariff and fiscal policy developments [4]. RMB Options Market Review - In the first half of 2025, the actual volatility of the RMB exchange rate increased, with the implied volatility in the RMB options market showing a "pulse" trend but maintaining stability in trading center [5]. - The first quarter saw a moderate trend in implied volatility, with the USD/CNY spot exchange rate fluctuating between 7.17 and 7.35, reflecting a significant appreciation of the RMB [6]. - The second quarter experienced a sharp rise in implied volatility due to increased tariff pressures, with the RMB reaching a historical high of 7.35 against the USD, followed by a decline in volatility as the market stabilized [6]. Outlook for the RMB Foreign Exchange Derivatives Market in the Second Half of 2025 RMB Swap Market Outlook - The RMB swap market is expected to see a narrowing of the China-US interest rate spread, driven by improved economic data and a stable domestic interest rate environment [7]. - The anticipated narrowing of the interest rate spread could lead to a rebound in the swap curve, with theoretical swap points around -1700 pips based on current short-term rates [8]. RMB Options Market Outlook - The RMB is expected to maintain low implied volatility in the second half of 2025, with external factors such as tariff disputes being the primary source of pressure [9]. - The overall improvement in the domestic economic environment is likely to support the RMB, with foreign investment in RMB assets increasing, contributing to a stable exchange rate [10].

Report Information - Report Name: Treasury Bond Daily Report [1] - Date: July 15, 2025 [2] - Researcher: He Zhuoqiao, Huang Wenxin, Nie Jiayi [3] Core View - Export being better than expected, the tightening of inter - bank funds during the tax period, and the strengthening of the A - share market suppressed the bond market, leading to a full - day decline in treasury bond futures. The yield of major term interest rate bonds in the inter - bank market increased slightly, and the funds in the money market tightened. It is expected that the third quarter will be a policy observation period, and the likelihood of further monetary easing is higher in October after the domestic economic recovery situation in the third quarter becomes clear, the results of the tariff negotiations are known, and the Fed cuts interest rates. Currently, the bond market is still constrained by funds [8][9][12] Summary by Section 1. Market Review and Operation Suggestions - **Market Conditions**: Export being better than expected, the tightening of inter - bank funds during the tax period, and the strengthening of the A - share market led to a full - day decline in treasury bond futures [8] - **Interest Rate Bonds**: The yields of major term interest rate bonds in the inter - bank market increased slightly. By 16:30 pm, the yield of the 10 - year treasury bond active bond 250011 reported 1.6710%, up 0.5bp [9] - **Money Market**: Affected by the tax period, the money market tightened, and there was a net injection in the open market. There were 106.5 billion yuan of reverse repurchases due, and the central bank conducted 226.2 billion yuan of reverse repurchase operations, achieving a net injection of 119.7 billion yuan. Short - term inter - bank funds rates rose across the board, while medium - and long - term funds remained stable and loose [10] - **Conclusion**: The release of June data this week is expected to have limited impact on the bond market. Currently, the marginal slowdown of export rush still supports the economy, and there is no further escalation of conflicts in Sino - US tariff negotiations. It is expected that the third quarter will be a policy observation period, and the bond market is still constrained by funds. However, the central bank's early announcement of the outright reverse repurchase operation after the market may boost market sentiment [11][12] 2. Industry News - **Financial Data**: In the first half of the year, RMB loans increased by 12.92 trillion yuan, and RMB deposits increased by 17.94 trillion yuan. The cumulative increase in the social financing scale was 22.83 trillion yuan, 4.74 trillion yuan more than the same period last year. The central bank stated that the effect of monetary policy in supporting the real economy was obvious [13] - **Foreign Trade Data**: In the first half of the year, China's total goods trade imports and exports were 21.79 trillion yuan, with exports increasing by 7.2% and imports decreasing by 2.7%. In June, imports, exports, and exports all achieved positive year - on - year growth [13][14] - **Monetary Policy Outlook**: The market generally expects the Fed to restart interest rate cuts in the second half of the year, which will narrow the Sino - US interest rate spread [14] 3. Data Overview - **Treasury Bond Futures Market**: The report presents the trading data of treasury bond futures on July 14, including the previous settlement price, opening price, closing price, settlement price, price change, percentage change, trading volume, open interest, and change in open interest of various contracts [6] - **Money Market**: Relevant charts show the term structure change and trend of SHIBOR, as well as the changes in the weighted average interest rate of inter - bank pledged repurchase and the interest rate of inter - bank pledged repurchase [28][32] - **Derivatives Market**: The report provides charts of the Shibor3M interest rate swap fixing curve (mean) and the FR007 interest rate swap fixing curve (mean) [34]

Core Viewpoint - The article discusses the anticipated appreciation of the Chinese yuan against the US dollar, with predictions from major financial institutions indicating a potential rise to 7.0 in the next 12 months and further to 6.7 by the end of 2026 [1][7]. Group 1: Factors Influencing Yuan Appreciation - The People's Bank of China emphasizes that it does not seek to gain international competitive advantage through currency depreciation, indicating a commitment to market-driven exchange rates [2][3]. - Since April, the yuan has appreciated approximately 1.4% against the dollar, surpassing the 7.15 mark, the highest since November of the previous year [4][17]. - Market sentiment has shifted positively, with institutions like Deutsche Bank and Morgan Stanley raising their growth forecasts for the Chinese economy and becoming bullish on the yuan [6][7]. Group 2: Economic and Market Dynamics - The exchange rate is fundamentally determined by supply and demand; a stronger outlook for the yuan leads to increased demand for it [9][10]. - The interest rate differential between China and the US plays a significant role; currently, Chinese banks offer about 0.95% for one-year deposits, while US banks offer over 3%, making holding dollars more attractive [11][12]. - A narrowing interest rate gap between China and the US could enhance the attractiveness of the yuan, leading to its appreciation [13][20]. Group 3: Impact of Global Events - The US-China trade tensions and the recent decline in the US dollar index, which has dropped nearly 11 points over six months, have contributed to the weakening of the dollar [18][20]. - Expectations of potential interest rate cuts by the Federal Reserve have also influenced the market, making the dollar less appealing [20][48]. - The ongoing trade negotiations between the US and China, despite challenges, have provided a supportive backdrop for the yuan's strength [24][26]. Group 4: Challenges for Export Enterprises - The appreciation of the yuan poses challenges for export enterprises, as it reduces the amount of yuan received from dollar-denominated sales, potentially impacting profit margins significantly [30][31]. - Exporters may struggle to adjust prices quickly due to long contract cycles, leading to potential losses if the yuan appreciates rapidly [32][34]. - The rising yuan could diminish the price competitiveness of Chinese products in international markets, increasing export pressures [34][36]. Group 5: Long-term Outlook and Strategic Adjustments - Analysts suggest that the yuan's appreciation may have a lagging effect on exports, providing time for companies to adapt [39]. - The shift towards higher-value exports, particularly in technology and capital-intensive goods, may mitigate some negative impacts of currency appreciation [40][41]. - Companies are encouraged to explore new markets and enhance product competitiveness to navigate the challenges posed by currency fluctuations [50][56].

Group 1 - The Central Committee of the Communist Party of China has issued opinions to strengthen judicial work in the new era, emphasizing severe punishment for financial crimes such as market manipulation, insider trading, illegal fundraising, loan fraud, and money laundering [1] - To maintain ample liquidity in the banking system, the People's Bank of China will conduct a 1.4 trillion yuan reverse repurchase operation using a fixed quantity, interest rate bidding, and multiple price levels starting from July 15, 2025 [1] - The Deputy Governor of the Central Bank, Zou Lan, stated that structural monetary policy tools will focus on supporting technological innovation and boosting consumption, with an improvement in the misalignment of monetary policy cycles between China and the US expected in the second half of the year, leading to a narrowing of interest rate differentials [1] Group 2 - Ganfeng Lithium expects a net loss of 300 million to 550 million yuan for the first half of the year, while Tianqi Lithium anticipates a net profit of 0 to 155 million yuan, marking a turnaround from losses [2] - Xiangyang Bearing is projected to have a net loss of 13 million yuan for the half-year period, and Jingyuntong expects a net loss of 165 million to 225 million yuan [2] - Greenland Holdings anticipates a net loss of 3 billion to 3.5 billion yuan for the first half of the year, while Zhongyan Chemical reports an 88% year-on-year decline in net profit [2] - Tongwei Co. expects a net loss of 4.9 billion to 5.2 billion yuan, and JA Solar anticipates a net loss of 2.5 billion to 3 billion yuan for the first half of the year [2] - Longi Green Energy expects a net loss of 2.4 billion to 2.8 billion yuan, showing a reduction in losses compared to previous periods [2] - Lianhuan Pharmaceutical anticipates a net loss of 38 million to 45 million yuan for the first half of the year [2]

Core Viewpoint - The article discusses the current state and future direction of China's monetary policy, emphasizing the stability of the RMB exchange rate and the expected improvements in the alignment of monetary policy cycles between China and the US, as well as the focus on supporting key sectors like technology innovation and consumption. Group 1: Monetary Policy Overview - The RMB exchange rate remains stable with a solid foundation due to the improving domestic economy [1] - The expectation of the Federal Reserve restarting interest rate cuts in the second half of the year will help narrow the interest rate differential between China and the US [2] - Recent years have seen a supportive monetary policy environment, with multiple reductions in reserve requirements and interest rates [3] Group 2: Future Monetary Policy Direction - The effects of previously implemented monetary policies will continue to manifest over time, with a commitment to maintaining a moderately loose monetary policy [4] - Structural monetary policy tools will focus on supporting technology innovation and boosting consumption, enhancing the effectiveness of economic restructuring and transformation [5][6] Group 3: Financial Support for Key Areas - The People's Bank of China (PBOC) will enhance financial services for the real economy, ensuring liquidity remains ample and aligning monetary supply growth with economic growth targets [7] - Emphasis will be placed on supporting private and small enterprises, improving the financial support system, and increasing the availability of financing for these sectors [8]

Core Viewpoint - The People's Bank of China (PBOC) will continue to implement a moderately accommodative monetary policy, with the effects of previously implemented policies expected to further materialize [1][4]. Group 1: Monetary Policy Implementation - The PBOC emphasizes that the transmission of monetary policy takes time, and the effects of already implemented policies will continue to emerge [4]. - The current monetary policy environment is supportive, with cumulative effects from multiple recent rate cuts and reserve requirement ratio reductions [3]. - The PBOC plans to maintain ample liquidity and ensure that the growth of social financing and money supply aligns with economic growth and price level expectations [6]. Group 2: Focus Areas for Monetary Policy - Structural monetary policy tools will focus on supporting technological innovation and boosting consumption, adhering to principles of being targeted, reasonable, and adaptable [5]. - The PBOC aims to enhance financial services for the real economy, particularly in key areas such as technology innovation, consumption expansion, and support for small and micro enterprises [6]. - There will be a continued effort to improve the financial support system for private and small enterprises, including enhancing credit availability and promoting efficient financing connections [7]. Group 3: International Context - The divergence in monetary policy cycles between China and the U.S. is expected to improve, with narrowing interest rate differentials anticipated as the market expects the Federal Reserve to resume rate cuts in the second half of the year [2]. - The stability of the RMB exchange rate is supported by a solid domestic economic foundation, despite uncertainties in the U.S. dollar's performance [1].

Core Viewpoint - The People's Bank of China (PBOC) is implementing structural monetary policy tools to support technological innovation and boost consumption, aiming to enhance economic transformation and upgrade [3][8]. Group 1: Monetary Policy Measures - In May, the PBOC launched a comprehensive set of financial policy measures, all of which were implemented by the end of May, with a focus on supporting technological innovation and consumption [3][7]. - As of the end of June, the total social financing stock increased by 8.9% year-on-year, with M2 growing by 8.3% and RMB loans up by 7.1% [6]. - Since 2020, the PBOC has cut the one-year and five-year Loan Prime Rate (LPR) by 115 and 130 basis points respectively, reflecting a supportive monetary policy stance [5][9]. Group 2: Economic Indicators - By the end of May, the contract amount for loans related to technological innovation and technological transformation reached 17.4 trillion yuan, available for enterprises to draw upon [3]. - The balance of loans for the "Five Major Financial Articles" reached 103.32 trillion yuan by the end of May, a year-on-year increase of 14%, with technology loans accounting for 43.3 trillion yuan, up 12% [16]. - In the first half of the year, new loans primarily targeted the manufacturing and infrastructure sectors, with manufacturing medium- and long-term loans growing by 8.7% and infrastructure loans by 7.4% [15]. Group 3: Consumption and Service Sector - The PBOC has established a 500 billion yuan service consumption and elderly care refinancing facility to enhance financial support for the service sector, which is crucial for boosting consumption and expanding domestic demand [13]. - The service consumption market shows strong demand, but the main limitation to expanding service consumption is supply [12][13]. Group 4: Bond Market and Financing - In the first half of 2025, China's bond market issued various bonds totaling 4.43 trillion yuan, a 16% year-on-year increase, significantly supporting fiscal policy implementation and financing for real enterprises [19]. - The net financing from bonds accounted for 38.6% of the increase in social financing, indicating a robust bond market performance [19].

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - Short - term liquidity depends on central bank's injections. Investors can maintain duration and seize opportunities from falling interest rates [2]. - In mid - July, there are both positive and negative factors for the liquidity. The key variable is the central bank's roll - over of outright reverse repos. DR007 is likely to fluctuate between 1.40% - 1.50%. There are few negative factors for the bond market. If there is a tightening trend in liquidity, a further decline in large banks' lending volume should be observed first [3]. 3. Summary According to Related Catalogs 3.1 This Week's Institutional Behavior Review: Is There a Tightening Trend in Liquidity? - **Yield Curve**: Yields of treasury bonds and China Development Bank bonds generally increased. For treasury bonds, 1Y yield rose 3bp, 3Y and 5Y rose 4bp, 7Y rose 3bp, 10Y rose about 3bp, 15Y and 30Y rose 2bp. For China Development Bank bonds, 1Y yield rose about 4bp, 3Y rose 4bp, 5Y rose about 6bp, 7Y and 10Y rose 3bp, 15Y rose 2bp, and 30Y changed less than 1bp [13]. - **Term Spread**: The spread between treasury bonds and China Development Bank bonds increased. For treasury bonds, the short - term spread narrowed and the long - term spread widened. For China Development Bank bonds, the short - term spread was divided, and the medium - and long - term spread narrowed [16]. 3.2 Bond Market Leverage and Liquidity - **Leverage Ratio**: It dropped to 107.3%. From July 7th to July 11th, 2025, the leverage ratio decreased continuously during the week. As of July 11th, it was about 107.3%, down 0.69pct from last Friday and 0.58pct from this Monday [20]. - **Average Daily Turnover of Pledged Repurchase**: The average daily turnover of pledged repurchase this week was 8.2 trillion yuan, with an average overnight proportion of 89.57%. From July 7th to July 11th, the average daily turnover was 8.2 trillion yuan, up 0.61 trillion yuan from last week. The average overnight turnover was 7.4 trillion yuan, up 0.55 trillion yuan month - on - month, and the average overnight proportion was 89.57%, down 0.14pct month - on - month [26][27]. - **Liquidity**: Banks' lending volume continued to decline. From July 7th to July 11th, the lending volume of the banking system decreased. On July 11th, large banks and policy banks' net lending was 4.65 trillion yuan; joint - stock banks and urban and rural commercial banks' average daily net lending was 0.66 trillion yuan, and on July 11th, they had a net inflow of 0.91 trillion yuan. The banking system's net lending was 3.74 trillion yuan [31]. 3.3 Duration of Medium - and Long - Term Bond Funds - **Median Duration**: It dropped to 2.87 years. From July 7th to July 11th, the median duration of medium - and long - term bond funds was 2.87 years (de - leveraged) and 3.21 years (leveraged). On July 11th, the median duration (de - leveraged) was 2.87 years, down 0.01 year from last Friday; the median duration (leveraged) was 3.21 years, up 0.04 year from last Friday [45]. - **Duration of Interest - Rate Bond Funds**: It rose to 3.93 years. Among different types of bond funds, the median duration (leveraged) of interest - rate bond funds rose to 3.93 years, up 0.02 year from last Friday; the median duration (leveraged) of credit bond funds rose to 2.98 years, up 0.01 year from last Friday; the median duration (de - leveraged) of interest - rate bond funds was 3.55 years, up 0.09 year from last Friday; the median duration (de - leveraged) of credit bond funds was 2.73 years, down 0.02 year from last Friday [48]. 3.4 Category Strategy Comparison - **China - US Yield Spread**: It generally widened. The 1Y spread widened 3bp, 2Y widened 7bp, 3Y widened 6bp, 5Y widened 5bp, 7Y widened 3bp, 10Y widened about 3bp, and 30Y widened 2bp [52]. - **Implied Tax Rate**: The short - term spread widened, and the long - term spread narrowed. As of July 11th, the spread between China Development Bank bonds and treasury bonds widened 1bp for 1Y, changed less than 1bp for 3Y, widened 2bp for 5Y, widened 1bp for 7Y and 10Y, changed less than 1bp for 15Y, and narrowed 2bp for 30Y [53]. 3.5 Changes in Bond Lending Balance On July 11th, the concentration of lending for active 10Y treasury bonds, active 10Y China Development Bank bonds, second - active 10Y China Development Bank bonds, and active 30Y treasury bonds showed an upward trend, while the concentration of second - active 10Y treasury bonds showed a downward trend. For all institutions, it showed an upward trend [56].

Group 1: RMB Exchange Rate Dynamics - The RMB exchange rate has evolved from a fixed system to a more flexible management system since the 2005 reform, with significant changes in pricing logic from "surplus settlement" to "interest rate differential holding" as the main driver[6] - In Q1 2025, the current account surplus reached $165.6 billion, a historical high with a year-on-year growth of 250%, driven by strong goods trade surplus of $237.6 billion, up 90% year-on-year[21] - The financial account recorded a deficit of $496.2 billion in 2024, an increase of $256.8 billion from the previous year, indicating significant downward pressure on direct and securities investments[25] Group 2: Investment Trends and Market Sentiment - Direct investment is expected to recover in 2025, with foreign direct investment (FDI) turning positive in Q4 2024, recording a net inflow of $34.1 billion, a 66% year-on-year increase[28] - Securities investment saw a historical high quarterly outflow of $149.5 billion in Q4 2024, but is anticipated to improve as market conditions stabilize[31] - The willingness of foreign trade enterprises to settle in RMB has increased, with the net settlement rate rising to 41% in April 2025, reflecting a recovery in market confidence[49] Group 3: Policy Implications and Future Outlook - The U.S. Federal Reserve's interest rate decisions are critical for the RMB exchange rate, with expectations of a slower and smaller rate cut cycle impacting emerging markets[14] - The resilience of the current account and the recovery of the financial account are essential for supporting the RMB's bottom line, with potential for continued appreciation in the second half of 2025[22] - Risks include potential setbacks in U.S.-China trade negotiations and geopolitical tensions that could affect capital flows and the current account surplus[42]

Report Industry Investment Rating No relevant content provided. Core Viewpoints - In the first half of 2025, the global foreign exchange market saw a weakening US dollar and a general strengthening of non - US currencies. The on - shore RMB appreciated about 1.8% against the US dollar, mainly due to a more than 10% drop in the US dollar index, along with China's economic recovery, policy support, and central bank's regulation [6]. - The slowdown of the US economy, rising fiscal deficits and debt risks have increased concerns about the US dollar's credit. In contrast, China's economy continues its moderate recovery, and the narrowing growth gap between the two countries is conducive to the RMB's stability [6]. - With the expectation of falling inflation, the Fed may start cutting interest rates in the fall, which will narrow the Sino - US interest rate spread, reduce capital outflows, and support the RMB [6]. - Although the Trump administration's tariff policies caused short - term fluctuations in the RMB exchange rate in the first half of the year, the RMB's sensitivity to such policies has decreased, and it is expected to only fluctuate significantly under extreme policy scenarios in the second half [7]. - Overall, the RMB exchange rate is expected to continue to fluctuate within a range, showing a trend of "two - way fluctuations and moderate appreciation" [7]. Summary by Directory 2025 H1 USD/CNY Exchange Rate Trend: Policy - led Features in Structural Decline - At the beginning of 2025, the US dollar index was high but started to decline after Trump's new trade protectionist policies. The US dollar index dropped from about 109 to less than 100 from January to May, and the "tariff stick" policy weakened investors' confidence in US dollar assets [12]. - The RMB exchange rate against the US dollar generally appreciated in H1 2025, with the USD/CNY exchange rate fluctuating between 7.1 - 7.45. The RMB showed resilience and recovered quickly after short - term weakening [13]. Macroeconomic and Policy Variables Shape the Exchange Rate's Central Axis - Trump's trade protectionist policies in H1 2025 led to a weakening of the US dollar and changes in the global foreign exchange market's risk - hedging pattern. The RMB faced short - term depreciation pressure [15]. - The Sino - US relationship's temporary easing in May 2025 boosted market sentiment and supported the RMB, although this easing was fragile [16]. Divergence in Domestic and Foreign Economies and Policy Stances Reduced Linkage - In H1 2025, the RMB's appreciation was moderate compared to the decline of the US dollar index, due to China's complex economic recovery and the central bank's policy of maintaining the RMB's stability against a basket of currencies [17]. Economy: Macroeconomic Drivers and Exchange Rate Fluctuations under the Background of Sino - US Policy Divergence - In H1 2025, China's economy had improving domestic demand and fluctuating external demand. The RMB exchange rate remained stable with a slight depreciation tendency. The US economy showed resilience but had hidden risks, and the US dollar remained strong due to high interest rates [34][35]. - In H2 2025, the US inflation and fiscal situation may affect the US dollar index, and China's external demand may weaken, but domestic policies can support the RMB [36][37]. Interest Rate Spread: Continued Inversion and Adjustment Space under Sino - US Policy Divergence - In H1 2025, the 10 - year Sino - US Treasury yield spread was deeply negative, mainly due to the divergence in monetary policies and macro - fundamentals between the two countries [44][45]. - China's central bank aims to maintain exchange rate stability and may be more cautious in policy implementation. The Fed may cut interest rates in H2 2025, which could narrow the Sino - US interest rate spread and relieve the RMB's depreciation pressure [46]. Trade Policy Uncertainty: The RMB Exchange Rate is "Desensitized" to Trade Policy Uncertainty - In H1 2025, Sino - US trade frictions intensified but eased in May. In H2 2025, trade policies still have uncertainties, which may affect exports but have a weakening impact on the RMB exchange rate [52][54]. H2 Trend: The Possibility of a Weakening US Dollar and a Strengthening RMB - From an economic fundamental perspective, the US economy has structural contradictions, while China's economy is recovering. This is favorable for the RMB's strength [55]. - In terms of interest rate spreads, if the Fed cuts interest rates as expected and China's interest rates remain stable, the Sino - US interest rate spread may narrow, supporting the RMB [58]. - Regarding trade policy uncertainty, the RMB exchange rate has become less sensitive to trade frictions, and its pricing will rely more on economic fundamentals and interest rate spread expectations [59]. - In H2 2025, the RMB exchange rate's central axis may continue to decline moderately, and it may even break below 7.0 against the US dollar under certain conditions [60].