Group 1: Report Overview - Report Type: Fixed Income Report [1] - Release Date: July 15, 2025 [1] - Analysts: Liang Weichao, Xie Peng [2] Group 2: Core Views - The liquidity of medium - and long - term, low - to medium - rated urban investment bonds has declined, while the liquidity of low - to medium - rated industrial bonds has increased [2][9][18] Group 3: Urban Investment Bonds Distribution and Yield - Regionally, high - grade liquid bonds in Jiangsu and Shandong increased, those in Tianjin and Chongqing remained stable, and those in Sichuan decreased. Yield fluctuations were within 1 - 2bp [9][10] - In terms of maturity, 1 - 2 - year high - grade liquid bonds increased, 1 - year - within, 2 - 3 - year bonds remained stable, and 3 - 5 - year and over - 5 - year bonds decreased [9][10] - By implicit rating, the number of high - grade liquid bonds with implicit ratings of AAA and AA - increased, while those with AA +, AA, and AA(2) decreased [9][10] Top 20 Ascending and Descending Liquidity Scores - Ascending: Mainly AA - rated, concentrated in Zhejiang, Anhui, etc., in industries like construction decoration and comprehensive [12] - Descending: Mainly AA - rated, in regions such as Jiangsu, Shandong, Sichuan, in industries like construction decoration, real estate, and comprehensive [12] Group 4: Industrial Bonds Distribution and Yield - By industry, high - grade liquid bonds in real estate and steel increased, those in public utilities decreased, and those in transportation and coal remained stable. Yield changes varied by industry, grade, and maturity [18][19][20] - In terms of maturity, 1 - 2 - year and over - 5 - year high - grade liquid bonds increased, 1 - year - within and 3 - 5 - year bonds decreased, and 2 - 3 - year bonds remained stable [18][19] - By implicit rating, the number of high - grade liquid bonds with implicit ratings of AA + and AA increased, while those with AAA +, AAA, and AAA - remained stable [18][19] Top 20 Ascending and Descending Liquidity Scores - Ascending: Mainly in public utilities, construction decoration, and real estate, with AAA and AA + ratings [20] - Descending: Mainly in construction decoration, commerce and trade retail, and transportation, with AAA ratings [20]

1. Report Industry Investment Rating - No industry investment rating information is provided in the report. 2. Core Viewpoints - The liquidity of medium - and long - term urban investment bonds continues to rise, and the number of high - grade liquid bonds of medium - and high - grade medium - and long - term industrial bonds increases [1][8][18]. 3. Summary by Relevant Catalogs 3.1 Urban Investment Bonds - **Liquidity**: Medium - and long - term high - grade liquid urban investment bonds continue to increase. Regionally, high - grade liquid bonds in Jiangsu, Shandong, and Sichuan increase, while those in Tianjin and Chongqing remain stable. In terms of maturity, the liquidity of short - term and medium - long - term bonds rises; the number of high - grade liquid bonds within 1 year and 1 - 2 years increases, that of 2 - 3 years decreases, and that of 3 - 5 years and over 5 years continues to increase. In terms of implicit rating, the liquidity of medium - and high - grade bonds increases, while that of low - grade bonds remains stable [1][8]. - **Yield**: Regionally, the yields of high - grade liquid bonds in Jiangsu, Shandong, Sichuan, Tianjin, and Chongqing mainly rise, with an increase range of 1 - 3BP. In terms of maturity, the yields of high - grade liquid bonds at all maturities mainly rise, with an increase range of 1 - 2BP. In terms of implicit rating, the yields of bonds at all implicit levels mainly rise, with an increase range of 1 - 3BP; the yield of AA - bonds rises by about 5bp [11]. - **Top 20 Increase and Decrease in Liquidity Score**: The top 20 in terms of increase in liquidity score are mainly AA and AA + in terms of entity level, concentrated in regions such as Jiangsu, Shandong, and Guangdong, and mainly in industries such as architectural decoration, transportation, and real estate. The top 20 in terms of decrease are mainly AA in terms of entity level, distributed in regions such as Jiangsu, Shandong, Guangdong, and Hubei, and mainly in industries such as architectural decoration and comprehensive [13]. 3.2 Industrial Bonds - **Liquidity**: The number of high - grade liquid bonds of medium - and long - term medium - and high - grade industrial bonds increases. By industry, the high - grade liquid bonds in industries such as real estate, public utilities, transportation, coal, and steel all increase, with public utilities increasing more. In terms of maturity, the high - grade liquid bonds within 1 year and 3 - 5 years increase overall, while those of 1 - 2 years, 2 - 3 years, and over 5 years basically remain stable. In terms of implicit rating, the number of high - grade liquid bonds with implicit ratings of AAA, AAA -, and AA + increases, while those with implicit ratings of AAA + and AA remain stable [2][18]. - **Yield**: By industry, the yields of real estate bonds mainly decline, with a decline range of about 2 - 4bp, concentrated at 1 - 3BP; the yields of public utilities and coal bonds mainly rise, with an increase range of 1 - 3bp; the yields of transportation, coal, and steel bonds fluctuate. In terms of maturity, the yields of 2 - 3 - year bonds mainly decline, with a decline range of 2 - 3bp; the yields of 3 - 5 - year bonds mainly rise, with an increase range of 1 - 3bp; the yields of other maturities fluctuate. In terms of implicit level, the yields of AAA bonds mainly rise, with an increase range of 2 - 3bp; the yields of A - grade liquid bonds with an implicit level of AA + basically remain stable, and the yields of B - grade bonds decline by about 3bp; the yields of bonds at other implicit levels fluctuate [20]. - **Top 20 Increase and Decrease in Liquidity Score**: In terms of the increase in liquidity score, the top 20 entities are mainly in industries such as public utilities, real estate, steel, and architectural decoration, with entity levels mainly AAA and AA +; the top 20 bonds are mainly in industries such as transportation, coal, and public utilities. In terms of the decrease, the top 20 entities are mainly in architectural decoration, real estate, and public utilities, with entity levels mainly AAA, and the top 20 bonds are mainly in industries such as transportation and architectural decoration [22].

Group 1: Report General Information - Report Type: Fixed Income Report [1] - Release Time: June 24, 2025 [1] - Analyst: Liang Weichao, SAC Registration Number: S1340523070001 [2] - Research Assistant: Xie Peng, SAC Registration Number: S1340124010004 [2] Group 2: Core Viewpoints - In the urban investment bond market, the liquidity of medium - to long - term and high - rated bond items has increased. In the industrial bond market, the liquidity of medium - and high - rated bond items has increased [3][4][10][20] Group 3: Urban Investment Bonds Liquidity Analysis - Regionally, high - grade liquid bond items in Jiangsu increased, while those in Shandong, Sichuan, Tianjin, and Chongqing remained stable. In terms of maturity, medium - to long - term liquidity increased, and short - term liquidity decreased. By implied rating, high - grade bond item liquidity increased, and low - grade liquidity decreased [3][10] - Among the top twenty with rising liquidity scores, the main body levels are mainly AA, concentrated in regions such as Jiangsu, Zhejiang, and Anhui, and the industries mainly involve construction decoration and comprehensive industries. Among the top twenty with falling liquidity scores, the main body levels are mainly AA, and the regional distribution is mainly in Zhejiang, Sichuan, Shandong, etc., with industries mainly in construction decoration and comprehensive industries [12] Yield Analysis - Regionally, the yields of high - grade liquid bond items in Jiangsu, Shandong, Sichuan, Tianjin, and Chongqing mainly decreased, with the amplitude concentrated between 1 - 5BP. By maturity, the yields of high - grade liquid bond items at all maturities mainly decreased, with the amplitude concentrated between 1 - 5BP. By implied rating, the yields of bond items at all implied levels mainly decreased, with the amplitude concentrated between 1 - 3BP [3][12] Group 4: Industrial Bonds Liquidity Analysis - By industry, the high - grade liquid bond items in industries such as public utilities and coal increased, while those in real estate, transportation, and steel remained stable. By maturity, the high - grade liquid bond items at all maturities increased overall. By implied rating, the high - grade liquid bond items with implied ratings of AAA and AA+ increased, while AAA+, AAA -, and AA remained stable overall [4][20] - In terms of the rising liquidity scores, the industries of the top twenty main bodies are mainly construction decoration, public utilities, and transportation, with the main body levels mainly AAA. The industries of the top twenty bonds are mainly transportation and public utilities. In terms of the falling liquidity scores, the top twenty main bodies are mainly in the construction decoration and real estate industries, with the main body levels mainly AAA and AA+. The industries of the top twenty bonds are mainly transportation and coal [25] Yield Analysis - By industry, the yields of bond items in all industries mainly decreased, with the amplitude concentrated between 1 - 3BP. By maturity, except for the 1 - 2 - year - term, the yields of bond items at other maturities mainly decreased, with the amplitude concentrated between 3 - 5BP; the yields of 1 - 2 - year - term bond items mainly increased, with the amplitude between 1 - 2BP. By implied level, the yields of all levels mainly decreased, with the amplitude concentrated between 1 - 3BP [4][23]

Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the liquidity of local government bonds in China, highlighting the overall weak liquidity with an average liquidity index of 0.21, significantly lower than that of government bonds and credit bonds [1][3]. Core Insights and Arguments - **Liquidity Characteristics**: Local government bonds exhibit better liquidity in the early stages of their lifecycle, with a decline in mid-life and a slight recovery as they approach maturity. Short-term bonds generally have better liquidity than medium to long-term bonds [1][5]. - **Impact of Bond Size**: Bonds with a single issuance size greater than 20 billion RMB have better liquidity, while those smaller than 10 billion RMB show significantly weaker liquidity [1][11]. - **Trading Costs**: The liquidity issues of local government bonds lead to increased trading costs for investors, particularly for smaller bonds that may require higher spreads to sell [2]. - **Preference for General Bonds**: Fund managers prefer 5-7 year medium-term local government bonds, especially general bonds over special bonds due to lower risk capital requirements [3][18]. - **Regional Variations**: Bonds issued in economically developed regions like Jiangsu and Zhejiang have better liquidity due to higher public budget revenues and favorable holding conditions by local financial institutions [1][12][19]. Additional Important Insights - **Lifecycle Performance**: The liquidity of local government bonds is highest shortly after issuance, declines over time, and may recover slightly before maturity [5][10]. - **Turnover Rates**: The average monthly turnover rate for local government bonds is approximately 3%-4%, with initial high turnover rates that decline over time [10]. - **Impact of Early Redemption Clauses**: Bonds with early redemption clauses tend to have lower liquidity compared to those without such clauses, as market demand for flexible repayment options is lower [12][17]. - **Institutional Preferences**: There has been an increase in the proportion of short-term and medium-term pure bond funds held by institutional investors, particularly after September 2023, due to improved yield-to-risk ratios [18]. - **Selection Criteria for Bonds**: When selecting bonds, investors should consider factors such as bond size, type, issuance timing, regional rankings, and fund holding proportions [19]. This summary encapsulates the critical aspects of the local government bond market as discussed in the conference call, providing insights into liquidity dynamics, investor preferences, and regional performance variations.

Group 1: Report Overview - The report is the second part of the "Local Debt Investment Guide" series, analyzing local debt investment value from liquidity, special terms, and institutional behavior perspectives [3] - Local debt market shows characteristics in three dimensions: new and short - term bonds are more liquid, long - term funds target ultra - long - term bonds, and bonds with early repayment terms face liquidity discounts [3] Group 2: Liquidity Characteristics Overall Liquidity - Local debt liquidity is lower than that of treasury bonds and policy - bank bonds, with high - liquidity bonds being scarce. The average liquidity index of local government bonds on December 31, 2024, was 0.2116, compared to 0.6970 for treasury bonds and 0.65231 for policy - bank bonds [16][17] - High - scoring bonds in terms of bond characteristic factors are scarce, similar to the distribution of liquidity indicators [18] Factors Affecting Liquidity - Newly issued, short - term, and large - scale local bonds have stronger liquidity. Newly issued bonds (issued within 10% of the term) had an average liquidity index of 0.3176 on December 31, 2024, 50% higher than the overall average [24] - Short - term bonds (1 - 5 years) have higher turnover rates. All types of local bonds have the highest turnover rate at T + 0 [31][32] - Bonds with larger issuance amounts have better liquidity. Bonds with an issuance amount over 400 billion yuan had the highest turnover rate at T + 0 [38][47] - General bonds usually have stronger liquidity than special bonds. Newly issued general bonds and newly issued special bonds maintained a liquidity above 0.2 in the first 40% of the bond's life [49] Regional Liquidity - Economic strength affects local debt liquidity. Economically developed regions like Jiangsu, Zhejiang, Shandong, Guangdong, and Shanghai have leading liquidity [59] Group 3: Special Terms - Early Repayment Clause Issuance - The issuance of local government bonds with early repayment clauses has been increasing since 2018, peaking in 2022. Most of these bonds are newly issued special bonds [62][63] Pricing - The early repayment clause has no significant impact on primary - market pricing. However, in the secondary market, the yield of bonds with this clause is over - estimated [67][71] Liquidity - Bonds with early repayment clauses have lower liquidity on average (0.1817) compared to the overall average (0.2116). But some specific types of such bonds have relatively strong liquidity [87][90] Valuation - The valuation yield of bonds with early repayment clauses is generally lower than that of ordinary bonds, but there are exceptions [93] Group 4: Institutional Behavior Strategy Differentiation - Insurance companies are the main buyers of ultra - long - term bonds, aiming to match their liability duration. In 2024, they net - bought 14232.11 billion yuan of local bonds, mainly in the ultra - long - term [99] - Rural commercial banks focus on 5 - 10 - year bonds to capture trading opportunities. Fund companies and products net - bought 1150.92 billion yuan in 2024, mainly in 15 - 20 - year bonds [6][99] Market Impact - Large commercial banks resell bonds in the secondary market after purchasing them in the primary market, forming a market transmission chain [6] - Wealth management companies and funds have increased their holdings in recent years, especially in bonds with early repayment clauses during interest - rate decline cycles [6]