Core Viewpoint - The Federal Reserve, represented by Schmied, expresses hope that it is gradually approaching a more stable and normalized interest rate curve [1] Group 1 - The Federal Reserve aims for a more range-bound and normalized interest rate environment [1]

Report Information - Report Title: "Curve: Can It Flatten After Steepening? — Interest Rate Weekly (Week 2 of May)" [1] - Report Date: May 12, 2025 [2] - Chief Analyst: Yan Ziqi [2] - Research Assistant: Hong Ziyan [2] Report Industry Investment Rating - Not provided in the report Core Views - The current short - end downward movement depends more on the central bank's stance and operations, as well as the decline of funding rates and certificate of deposit rates. If the marginal indicators improve, the short - end downward space may open up [6] - The long - end is likely to oscillate in the short term, and a downward trend requires catalytic factors. The current bond market is favorable, but more catalysts are needed for interest rates to decline. It is advisable to maintain duration and wait for opportunities, and appropriate leverage can be added under the background of falling funding rates [8][9] Summary by Related Catalogs Short - end Interest Rate Analysis - After the double - cut policy was announced last week, the interest rate curve steepened, with the short - end down nearly 5bp and the long - end flat. The central bank's funding rate DR007 dropped significantly to 1.54% on May 9 [2] - Historically, after the reserve requirement ratio cuts were implemented since 2021, the short - end interest rates declined, oscillated, and increased 3, 2, and 3 times respectively. The necessity of short - end decline after reserve requirement ratio cuts may not be high [2] - Currently, non - bank institutions are buying short - term bonds, but large - bank - dominated allocation disks have not entered the market. Banks have been net sellers in recent weeks. However, large banks' funds lending has increased recently, and if the inter - bank certificate of deposit rate further approaches the policy rate, the short - end downward space may open up [4] - The key factor for the short - end to decline further lies in the central bank's stance and operations, as well as the decline of funding rates and certificate of deposit rates [6] Long - end Interest Rate Analysis - This year, the long - term bond has a high probability of short - term oscillation and needs catalytic factors to decline due to factors such as the weakening of broad - money expectations, repeated tariffs, and narrow term spreads [8] - The central bank's Q1 2025 monetary policy implementation report has relatively neutral impacts on the bond market. Although it mentions secondary trading of treasury bonds, new expressions are put forward to prevent interest rate risks [8] - The April inflation data is in line with expectations. The core CPI maintains a 0.5% positive growth. The real interest rate is close to the historical lower quartile, but the further downward space is limited [8]

1. Report Industry Investment Rating No information provided in the report. 2. Core Viewpoints of the Report - The inflation data in April reflects weak domestic demand. The CPI's year - on - year decline stabilized while the month - on - month showed an increase, and the PPI's decline widened, indicating overall weak inflation. [5][23] - In April, affected by international and domestic seasonal factors, industrial product prices weakened significantly. The Sino - US trade negotiation had no significant progress, and trade uncertainties remained. [5][23] - On May 7th, a package of monetary policy measures including reserve requirement ratio cuts and interest rate cuts were introduced to stabilize domestic demand and address economic uncertainties. Observe the implementation effects of these policies. [5][23] - The interest rate curve is expected to shift downward as a whole, and long - term bond yields may hit new lows. With the increase in fundamental pressure and loose funds in May, the overall interest rate curve is likely to move down, and long - term bond yields may reach new lows. [5][23][26] 3. Summary by Related Content CPI and Core CPI - In April, the CPI year - on - year decreased by 0.1%, the same as last month, with three consecutive months of negative growth. The month - on - month increased by 0.1%, up 0.5 percentage points from last month. The core CPI year - on - year increased by 0.5%, unchanged from last month, and the month - on - month increased by 0.2%, up 0.2 percentage points from last month. [1][8] - The year - on - year stability of CPI and core CPI may be partly supported by the rise in gold prices. The "Other Goods and Services" sub - item in CPI increased significantly, with a year - on - year increase of 6.6% and a month - on - month increase of 2.4% in April. After excluding this sub - item, the April CPI year - on - year was - 0.3%, indicating weak overall inflation. [2][11] Food CPI - In April, the food CPI's year - on - year decline narrowed, and the month - on - month changed from a decrease to an increase, with a significantly reduced drag. The fresh fruit price was the main driving factor. The food CPI year - on - year fell by 0.2%, with the decline narrowing by 1.2 percentage points from last month; the month - on - month increased by 0.2%, up 1.6 percentage points from last month. [2][13] - Due to the fishing moratorium in some areas, the price of aquatic products increased by 1.2% month - on - month. The supply of new fruits decreased seasonally, and the fresh fruit price increased by 2.2% month - on - month. Affected by the decrease in imports, the beef price increased by 3.9%. The prices of fresh vegetables and pork decreased by 1.8% and 1.6% respectively, with the declines less than the seasonal average. [2][13][14] Non - food CPI - In April, the non - food CPI's year - on - year changed from an increase to a flat state, and the month - on - month turned positive. The transportation and communication CPI was the main drag due to the decline in international oil prices. The non - food price year - on - year was flat, with the growth rate down 0.2 percentage points from last month; the month - on - month changed from a 0.2% decrease last month to a 0.1% increase. [3][16] - Affected by the significant decline in international oil prices, the gasoline price decreased by 10.4%, dragging down the CPI year - on - year by about 0.38 percentage points. The core CPI excluding food and energy prices increased by 0.5% year - on - year, with a relatively stable increase. [3][16] PPI - Affected by international commodity prices and seasonal factors, the year - on - year and month - on - month declines of the production materials PPI both widened in April. The production materials PPI year - on - year decreased by 3.1%, with the decline widening by 0.3 percentage points from last month, and the month - on - month decreased by 0.5%, with the decline widening by 0.1 percentage point. [4][18] - The decline in international crude oil prices led to a month - on - month decline in domestic oil - related industries. The price of the oil and gas extraction industry decreased by 14.2% year - on - year. With the end of heating in the north, the coal demand entered the off - season, and the prices of coal mining and washing and petroleum - coal processing decreased by 15.2% and 11.1% year - on - year respectively. [4][18] - In April, the year - on - year decline of the living materials PPI widened, with a 1.6% decrease, and the decline widened by 0.1 percentage point from last month. The food price decreased by 1.4% year - on - year, the same as last month. The price of general daily necessities rebounded, with a 0.6% year - on - year increase, and the growth rate decreased by 0.1 percentage point. The durable consumer goods decreased by 3.7% year - on - year, still in the negative growth range, and the decline further widened by 0.3 percentage points. [4][20]