Group 1: Money Market Overview - The average daily trading volume in the money market increased, with a total transaction volume of 136.5 trillion yuan in May, reflecting a 4.6% decrease month-on-month, while the average daily transaction rose by 10.4% to 7.2 trillion yuan [2] - The overall liquidity in the market remained balanced and loose, with the central bank implementing a 10 basis point interest rate cut and a 0.5 percentage point reserve requirement ratio reduction, releasing 1 trillion yuan in funds [3] - The average daily balance in the money market increased to 11.7 trillion yuan, up 1.2% month-on-month, while the average net lending balance of large commercial banks rose by 20.4% [4] Group 2: Bond Market Dynamics - The issuance of bonds decreased to 4.48 trillion yuan in May, down 9.8% month-on-month but up 18.8% year-on-year, with net financing increasing by 68% to 2.11 trillion yuan [6] - The trading volume of bonds increased, with a total of 30 trillion yuan traded in May, reflecting a 6.7% month-on-month increase and a 5.5% year-on-year increase [8] - Bond yields experienced fluctuations, with the 10-year government bond yield ranging between 1.63% and 1.73%, indicating a steepening yield curve [10] Group 3: Interest Rate Swaps - The interest rate swap curve shifted upward overall, with slight increases in the swap prices for various maturities [11] - The average daily transaction volume for interest rate swaps saw a minor increase, with a total nominal principal amount of 3.2 trillion yuan traded in May [11]

Report Summary 1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Core Viewpoints The report analyzes the liquidity situation from June 16 - 20, 2025, indicating that the overall capital market shows a state of balanced and slightly loose funds, with some indicators showing upward or downward trends, and the market's expectation of the capital situation is relatively stable. Attention should be paid to the impact of factors such as the end - of - quarter credit impulse and government bond supply on the capital market [1][2][3]. 3. Summary by Related Content 3.1 Open Market Operations and Fund Rates - Last week, the open - market maturity was 1040.2 billion yuan, including 858.2 billion yuan of reverse repurchase maturity and 182 billion yuan of MLF maturity. The open - market investment was 960.3 billion yuan, all in reverse repurchase, with a net withdrawal of 7.99 billion yuan. The overall capital situation was balanced and slightly loose, with the average DR007 at 1.52%, up 0.5BP from the previous week, and the average R007 at 1.58%, up 1BP from the previous week. The average DR001 and R001 were 1.38% and 1.44% respectively. The exchange repurchase rate increased, with the average GC007 at 1.61%, up 4BP from the previous week. As of the last trading day of last week, the outstanding balance of reverse repurchase was 960.3 billion yuan, up from the previous week [1]. 3.2 Certificate of Deposit (CD) and IRS Yields - Last week, the total maturity of CDs was 1021.64 billion yuan, the issuance was 1102.32 billion yuan, and the net financing scale was 80.68 billion yuan. As of the last trading day of last week, the yield to maturity of 1 - year AAA CDs was 1.64%, down from the previous week. This week, the single - week maturity scale of CDs is about 1137.81 billion yuan, with a greater maturity pressure than the previous week. In terms of interest rate swaps, the average of the 1 - year FR007 interest rate swap last week was 1.53%, up from the previous week. The market's expectation of the capital situation is stable, and CDs are more affected by seasonal supply - demand pressure [2]. 3.3 Repurchase Volume and Institutional Behavior - Last week, the volume of pledged repurchase was between 7.7 - 8.8 trillion yuan, with the average R001 repurchase volume at 7462.2 billion yuan, up 361.4 billion yuan from the previous week. As of the last trading day of last week, the outstanding balance of repurchase was 12.7 trillion yuan, up from the previous week. The repurchase leverage has returned to the high point of December last year. By institution, the lending scale of large banks increased, while that of money market funds decreased. The borrowing scales of securities firms, funds, and wealth management increased. As of Friday, the repurchase balances of large banks and money market funds were 5.30 trillion yuan and 1.94 trillion yuan, up 358.3 billion yuan and down 9.4 billion yuan respectively from the previous week. The positive repurchase balances of securities firms, funds, and wealth management were 1.86 trillion yuan, 2.47 trillion yuan, and 777.6 billion yuan respectively, up 21.7 billion yuan, 83.5 billion yuan, and 55.6 billion yuan respectively from the previous week [3]. 3.4 Bill Rates and Exchange Rates - Last Friday, the 6M national stock bill transfer quotation was 1.05%, up from the last trading day of the previous week. Near the end of the quarter, attention should be paid to the situation of credit impulse. Last Friday, the US dollar - to - RMB exchange rate was reported at 7.18, up slightly from the previous week, and the Sino - US interest rate spread narrowed. Last week, the Fed held its June FOMC meeting, keeping the federal funds rate target range at 4.25 - 4.5%, maintaining the interest rate unchanged for four consecutive times, while raising the inflation forecast and lowering the economic growth forecast, suggesting an increase in stagflation risk. Due to the Fed's caution, the approaching inflation pulse, and the Treasury's supply pressure, short - term US bond yields may remain high [4]. 3.5 This Week's Key Concerns - This week, the open - market capital maturity is 1060.3 billion yuan, including 960.3 billion yuan of reverse repurchase maturity and 100 billion yuan of treasury deposit maturity. On Friday, China's industrial enterprise profits for May will be announced, and attention should be paid to the enterprise profit repair situation. The eurozone's economic sentiment index for June will also be announced on Friday, and attention should be paid to the eurozone's economic trend. In addition, the US PCE for May will be announced on Friday, and attention should be paid to the inflation trend. This week, the 7 - day repurchase starts to cross the quarter, and the government bond supply scale is large. Attention should be paid to the impact on the capital situation [5].

Group 1: Liquidity Overview - The liquidity environment has shown unexpected convergence due to multiple cash return pressures, with significant fluctuations observed from May 12-16, 2025[1] - Initial phase saw a continuation of loose liquidity with rates declining, while the latter phase faced multiple cash return pressures leading to a marginal tightening[1] - On May 16, overnight rates surged by over 20 basis points, with R001 and DR001 rising to 1.65% and 1.63% respectively[1][11] Group 2: Market Outlook - The likelihood of a return to the tight liquidity conditions of Q1 2025 is low, with a stable rate around 1.5% expected before the central bank resumes bond purchases[2] - The fundamental economic conditions do not support restrictive policies, as the central bank aims to stabilize economic growth and social stability[2] - Since mid-April, the external constraints on monetary policy from exchange rates have weakened, allowing for more flexibility[2] Group 3: Open Market Operations - From May 12-16, the central bank conducted a net cash withdrawal of CNY 475.1 billion, with reverse repos totaling CNY 486 billion and MLF maturities of CNY 125 billion[3] - Upcoming reverse repos maturing from May 19-23 amount to CNY 486 billion, with additional treasury deposits planned[3] Group 4: Government Bonds and Bills - The net payment pressure for government bonds has decreased to CNY 397.9 billion, down from CNY 715.8 billion the previous week[5][31] - The planned issuance of government bonds from May 19-23 is CNY 764.5 billion, slightly lower than the previous week's CNY 787.7 billion[5][31] Group 5: Interbank Certificates of Deposit - The weighted issuance rate for interbank certificates of deposit fell significantly to 1.64%, a decrease of 6 basis points from the previous week[6] - The upcoming maturity of interbank certificates of deposit is CNY 746 billion, an increase from CNY 593.9 billion the prior week, indicating rising maturity pressure[6][51]

Financial Data and Key Metrics Changes - For the first quarter, the company generated GAAP earnings of $41.2 million or $0.32 per basic common share, driven by growth in net interest income to $57.5 million and modest net mark to market gains [12][13] - GAAP book value was $13.28 per share and economic book value was $13.84 per share, each down less than 1% since December [12][16] - Distributable earnings for the quarter were $30.5 million or $0.29 per basic common share, down from $0.39 in the fourth quarter [15] Business Line Data and Key Metrics Changes - Lima One contributed $5.4 million of mortgage banking income for the quarter, a decline from $8.5 million in the fourth quarter, driven by lower origination volumes and a decline in gains on sales of single-family rental loans [13][21] - The company sourced $875 million of loans and securities, growing the portfolio to $10.7 billion from $10.5 billion at year-end [17] - The company issued its seventeenth non-QM securitization in March, selling $283 million of bonds at an average coupon of 5.58% [18] Market Data and Key Metrics Changes - Fixed income markets were generally constructive throughout the first quarter, with the ten-year yield closing the quarter at 4.2% [6] - Credit spreads tightened somewhat over January and February but widened modestly in March as the market anticipated trade policy announcements [7] - The company experienced total margin calls of just under $20 million, satisfied with $18.5 million of cash and $1.3 million of unpledged agency bonds [10] Company Strategy and Development Direction - The company emphasized its investment strategy, risk management, and financing rigor to weather market volatility [9][11] - The focus remains on three strategies: Non-QM, BPL, and Agency MBS, with plans to continue growing the Agency MBS segment as long as spreads remain attractive [17][20] - The company expects to see ample opportunities to add target assets at mid to high teen ROEs, which are seen as a proxy for current earnings power [14] Management's Comments on Operating Environment and Future Outlook - Management noted that increased uncertainty and volatility are not favorable for fixed income, particularly for mortgages, but highlighted the benefits of the company's strategic emphasis on securitization and diversification [9][10] - The company anticipates that distributable earnings will be increasingly volatile and less indicative of current earnings power over the next several quarters due to short-term headwinds [15][16] - Management estimates that economic book value is down approximately 2% to 4% since the end of the first quarter, primarily due to wider spreads [16] Other Important Information - The company hired nine loan officers in Q1 and seven so far in Q2 to improve volume growth at Lima One [22] - Delinquency rates for the entire loan portfolio remained stable at 7.5%, with some increases in specific segments due to repayments outpacing origination volume [22][23] Q&A Session Summary Question: Impact from the swap and runoff - The impact for the second quarter is expected to be about $0.02 in terms of Q1 versus Q2 impact [25] Question: Quantifying loan resolutions - Timing for resolutions is difficult to predict, but the majority of the multifamily transitional book is in foreclosure [26][27] Question: Returns breakdown between agencies and other asset classes - Mid to high teens returns are achievable in both agencies and non-QM, with BPL potentially above 20% [28][29] Question: Loan resolutions relative to marks - Resolutions have generally occurred at or near the mark, with comfort in current valuations [33][34] Question: Focus on new BPL originations - The focus remains on ground-up bridge and fix-and-flip transactions, with opportunities in ground-up projects [36] Question: Changes in book value in the second quarter - Economic book value is expected to be down 2% to 4% net of dividend accrual [40][42] Question: Number of approved loan sellers for NQM - The number of approved loan sellers varies from four to eight, with deeper relationships with fewer counterparties [43] Question: Demand for loan products and competitive environment - Strong demand from insurance companies remains, with no significant shakeout in the competitive environment [51][52] Question: Convexity risk in the portfolio - Convexity risk is driven by both the agency MBS and non-QM portfolios, with a conservative approach to calculations [59][60] Question: Nature of defaults in the Lima One portfolio - Defaults are driven by various factors, including high interest expenses and project delays, but tariffs are not expected to have a material impact [61][63]

Financial Data and Key Metrics Changes - For the first quarter of 2025, the company reported GAAP earnings of $41.2 million or $0.32 per basic common share, driven by growth in net interest income to $57.5 million and modest net mark-to-market gains [10][11] - Economic book value was down 0.6% to $13.84 per share, while GAAP book value was also down less than 1% [10][11] - Distributable earnings for the quarter were $30.5 million or $0.29 per basic common share, down from $0.39 in the fourth quarter [12][13] Business Line Data and Key Metrics Changes - Lima One contributed $5.4 million of mortgage banking income for the quarter, a decline from $8.5 million in the fourth quarter, attributed to lower origination volumes and a decrease in sales of single-family rental loans [11][19] - The company sourced $875 million of loans and securities, growing the investment portfolio to $10.7 billion from $10.5 billion at year-end [15] - Non-QM loans sourced during the quarter totaled $383 million with an average coupon of 7.8% and a weighted average LTV of 65% [16] Market Data and Key Metrics Changes - Fixed income markets were generally constructive throughout the first quarter, with the ten-year yield closing at 4.2% [5] - Credit spreads tightened in January and February but widened modestly in March due to anticipated trade policy announcements [6] - The company experienced total margin calls of just under $20 million, satisfied with $18.5 million in cash and $1.3 million in unpledged agency bonds [8] Company Strategy and Development Direction - The company emphasized its investment strategy, risk management, and financing rigor to navigate market volatility [8] - The focus remains on three strategies: Non-QM, Business Purpose Loans (BPL), and Agency MBS, with plans to continue growing the Agency MBS segment as long as spreads remain attractive [15][18] - The company expects to see ample opportunities to add target assets at mid to high teen ROEs, indicating confidence in long-term earnings power [11][12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged increased uncertainty and volatility in the market, particularly affecting fixed income and mortgage sectors [8] - The company anticipates short-term increases in realized credit losses as it works through challenged assets, but believes these headwinds are temporary [12][13] - Economic book value is estimated to be down approximately 2% to 4% since the end of the first quarter, primarily due to wider spreads [14] Other Important Information - The company declared an increased dividend of $0.36 per common share for the first quarter, reflecting confidence in the portfolio's earnings power [11] - The company issued its seventeenth non-QM securitization in early March, selling $283 million of bonds at an average coupon of 5.58% [16] Q&A Session Summary Question: Impact from the swap and runoff - The impact for the second quarter is expected to be about $0.02 in terms of Q1 versus Q2 impact due to remaining runoff [24] Question: Quantifying loan resolutions - Timing for loan resolutions is difficult to predict, but the majority of credit discounts are expected to flush out over the next year [25][26] Question: Returns breakdown between asset classes - Mid to high teens returns are achievable in both agencies and non-QM, with BPL potentially above 20% [27] Question: Loan resolutions relative to marks - Resolutions have generally occurred at or near the mark, with comfort in the current valuations [30][31] Question: Focus on new BPL originations - The focus remains on ground-up bridge and fix-and-flip projects, with opportunities in the current market [34] Question: Changes in book value - Economic book value is expected to be down 2% to 4% net of dividend accrual [38][40] Question: Number of approved loan sellers - The number of approved loan sellers varies from four to eight, with deeper relationships with fewer counterparties [42] Question: Securitization pricing in the current market - Recent deals have priced between 160 and 170, indicating strong demand despite wider spreads [46] Question: Demand for loan products and competitive environment - Demand from insurance companies remains strong, and there has not been a significant shakeout in the competitive environment [51][52]