Investment Rating - The industry investment rating is "Outperform the Market," indicating an expected relative increase of over 10% in the industry index compared to the market over the next six months [5][8]. Core Insights - The monetary policy report suggests maintaining relatively loose financing conditions, with expectations of continued liquidity support in the fourth quarter. The report emphasizes the need for macro policy coordination to promote reasonable price recovery [3][4]. - The report highlights the importance of maintaining a reasonable interest rate relationship, which influences the allocation of financial resources. It calls for enhanced linkage between asset and liability interest rate adjustments to support banks in stabilizing net interest margins [4]. - The banking sector's profit growth in the third quarter is attributed to reduced provisioning, stabilized net interest margins, and improved wealth management-related income, indicating a cyclical recovery. Future focus should be on the impact of bond market fluctuations on revenue and asset quality trends [4]. Summary by Sections Monetary Policy and Economic Outlook - The report expresses a cautious view on the economic situation, noting insufficient global economic growth momentum and the need for stronger domestic economic recovery [3]. - It mentions that the total financial indicators should be viewed scientifically, with a shift in monetary policy targets from quantity to price [3]. Interest Rate Dynamics - The report stresses the significance of interest rate comparisons across various financial instruments, which dictate the flow of funds and resource allocation [4]. - It suggests that the adjustment of interest rates on both sides of banks' balance sheets should be coordinated to enhance the effectiveness of monetary policy [4]. Banking Sector Performance - The report indicates that the banking sector's revenue growth is expected to continue improving, with enhanced performance stability and increased attractiveness for high-dividend investments [4]. - It notes that the issuance of special refinancing bonds by local governments, amounting to 4 trillion yuan, is primarily aimed at repaying bank loans, reflecting a shift in leverage dynamics [3].

Report Industry Investment Rating No relevant content provided. Core View of the Report - The bond market is expected to oscillate in the short term. The overall weakness of macro - financial and economic indicators in October, the downward trend of the overseas labor market, and the central bank's attitude of protecting liquidity are all favorable to the bond market. However, the low probability of monetary policy intensification due to weak financial data, the "buy the dip" behavior in the stock market, and the potential impact of the pending new regulations on public bond fund redemption fees make the short - term unilateral trend of the bond market still tangled [5]. - For arbitrage, with a neutral - bullish view and the 30Y - 7Y term spread at a relatively high historical level in the past three years, it is recommended to continue to hold an appropriate amount of (TL - 3T) positions. As the delivery month approaches and the valuation of the current - quarter contract becomes reasonable, short - sellers accelerating the roll - over may drive the spread to strengthen. It is advisable to try to go long on the current - quarter to next - quarter spread of the T contract when the opportunity arises [5]. Summary by Directory First Part: Weekly Core Points Analysis and Strategy Recommendation Macroeconomic Indicators - In October, major domestic macro - economic indicators generally declined on a high - base effect, with contractions in both production and demand [7]. - The continuous weakening of some domestic demand indicators recently implies that the multiplier effect of previous policies is not obvious, and the self - repair momentum of the domestic economy is not strong [10]. Credit Expansion - Credit expansion continued to slow down in October. New RMB loans were 220 billion yuan, a year - on - year decrease of about 280 billion yuan. Social financing scale was 815 billion yuan, a year - on - year decrease of 597 billion yuan. However, corporate direct financing performed well, with corporate bond financing and non - financial corporate stock financing increasing by 189.4 billion yuan compared to the same period last year [14][17]. M1 and Deposits - M2 growth rate in October was 8.2% year - on - year, a 0.2 - percentage - point decline from the previous month. M1 growth rate was 6.2% year - on - year, a 1.0 - percentage - point decline from the previous month, showing an initial inflection point. After the quarter, household and non - financial corporate deposits declined seasonally, while non - bank financial institution deposits increased significantly [25]. - In October, new fiscal deposits were 72 billion yuan, a year - on - year increase of 12.48 billion yuan. The slowdown in fiscal expenditure may be one of the reasons for the decline in M1 growth rate. In the future, the seasonal increase in government expenditure at the end of the year is expected to support the cash flow of enterprises and households [26]. Market Liquidity - This week, the market liquidity tightened as expected due to the large net payment scale of government bonds. Next week, the net financing of government bonds is still relatively high, and the tax payment period from the 17th to the 19th is expected to bring some short - term disturbances to the liquidity. However, considering the central bank's attitude of protecting liquidity, the actual pressure on market funds is expected to be controllable [37]. Central Bank's Monetary Policy Report - The central bank's third - quarter monetary policy implementation report continues the loose tone, being more positive than the second - quarter report. However, it continues to downplay the importance of aggregate financial indicators. There are also concerns about the marginal decline in the efficiency of monetary policy [42]. Treasury Bond Futures Valuation and Roll - over - The valuation of Treasury bond futures contracts is still differentiated. The IRR of the next - quarter contracts of TS, TF, T, and TL is generally higher than that of the current - quarter contracts and the market funds price [48]. - The roll - over progress of the main contracts this week accelerated but was still slower than the historical average. The slow roll - over may be the reason why the inter - delivery spread did not generally strengthen this week. It is recommended to try to go long on the current - quarter to next - quarter spread of the T contract when the opportunity arises [54]. Second Part: Relevant Data Tracking - This part tracks various data related to Treasury bond futures, including trading volume, open interest, inter - contract spreads, net positions, Treasury bond spot yields, and related international financial data such as the US 10 - year Treasury bond yield, Sino - US 10 - year Treasury bond spread, US dollar index, and US dollar - RMB offshore exchange rate [58][61][65].

Core Viewpoint - The People's Bank of China emphasizes the importance of maintaining reasonable interest rate relationships to enhance the effectiveness of monetary policy and reduce arbitrage opportunities in the financial system [1][2]. Interest Rate Transmission Mechanism - The report discusses the transmission mechanism of policy interest rates through the financial system to various market rates, highlighting the need for a market-oriented interest rate system to function effectively [1]. - It is noted that different financial instruments have varying characteristics, leading to a diverse range of interest rates and the formation of price relationships [1]. Key Interest Rate Relationships - The report identifies several critical interest rate relationships that require attention: - The relationship between central bank policy rates and market rates, where market rates should align closely with policy rates to ensure effective transmission [3]. - The relationship between asset and liability rates of commercial banks, where discrepancies can compress net interest margins and affect banks' ability to support the real economy [3]. - The relationship between different asset yields, emphasizing that the financing costs for the same entity should not diverge excessively between bond yields and loan rates [3]. - The relationship between short-term and long-term rates, which should maintain a reasonable term spread [3]. - The relationship between different risk rates, where higher credit ratings should correspond to lower financing costs, ensuring adherence to risk pricing principles [3]. Regulatory Measures and Future Directions - Recent regulatory efforts have aimed to stabilize banks' net interest margins and manage interest rates effectively, with noticeable improvements [4]. - The central bank plans to continue monitoring the identified interest rate relationships and implement measures to ensure compliance with self-regulatory mechanisms, including the establishment of reporting mechanisms for deposit rates and loan pricing [4]. - Ongoing assessments of financial institutions' adherence to interest rate policies will be conducted to maintain reasonable net interest margins and expand the counter-cyclical adjustment space for monetary policy [4].

1. Report's Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - The central bank focuses on maintaining a reasonable interest rate ratio to prevent financial risks and improve the interest rate transmission system. Four groups of interest rate ratios are analyzed to guide bond market investors [2][12][14]. - In the bond market strategy, it is advisable to continue to explore alpha opportunities and wait for the year - end front - running market. Although year - end front - running by funds may weaken, institutions such as banks, insurance, and wealth management still have bond allocation needs [4][5]. - The bond market lacked a trading theme in the review period, with its trend following the stock market and yields fluctuating slightly around 1.8% [10]. 3. Summary by Relevant Catalogs 3.1 How to Understand the Central Bank's Interest Rate Ratio? 3.1.1 Why Does the Central Bank Focus on a Reasonable Interest Rate Ratio? - Low - interest environments can lead to "involution" in the financial industry, and an imbalanced interest rate ratio may trigger financial risks. For example, in early 2025, the bond market's over - anticipation of policy rate cuts led to an imbalance between the 10 - year Treasury yield and financial institutions' liability costs [12][13][14]. - A reasonable interest rate ratio is crucial for improving the central bank's interest rate transmission system. Since 2024, the central bank has reformed its monetary policy framework, emphasizing the importance of interest rate ratio in policy transmission and correcting banks' irrational competition [14]. 3.1.2 Clarifying Four Groups of Interest Rate Ratios - **Central Bank Policy Rates and Market Rates**: Policy rates are transmitted to money, bond, and loan markets. Since 2024, the central bank has strengthened its control over the money market, with DR001 fluctuating around the policy rate and DR007 about 10bp higher. The 10 - year Treasury yield is expected to range from OMO + 40bp to OMO + 70bp [15][17][20]. - **Commercial Banks' Asset and Liability Interest Rates**: The central bank emphasizes the balance between banks' liability costs and asset yields. From the end of 2022 to June 2025, deposit rates decreased less than loan rates, causing net interest margin compression. Maintaining a stable net interest margin can expand the central bank's counter - cyclical adjustment space [25][26]. - **Different Types of Asset Yields**: In asset allocation, funds flow to higher - return assets. The central bank prohibits loans with after - tax rates lower than those of Treasury bonds of the same term. Banks also consider tax and capital occupation when comparing assets [32]. - **Bond Asset Interest Rates of Different Terms and Risks**: Term spreads and credit spreads are important indicators for measuring the effectiveness of the bond market pricing mechanism. The central bank may focus on these spreads when managing market interest rates [40]. 3.2 Bond Market Strategy: Continue to Explore Alpha in the Short Term and Wait for the Year - End Front - Running Market 3.2.1 How to View the Year - End Institutional Allocation Market? - **Banks**: With less bond supply at the year - end, weakening credit demand, and limited pressure to realize floating profits, banks may still have an active demand for bond allocation. In 2025, bank bond - holding growth has rebounded, and some banks may have a need to replenish their bond portfolios [44]. - **Insurance**: After the reduction of the预定 interest rate in Q3 2025, insurance premium growth has recovered. Although equity market prosperity has affected bond allocation, long - term bonds are still attractive, and insurance may still have bond - buying demand at the year - end [54]. - **Wealth Management**: "Deposit migration" supports the scale of wealth management products. The scale of bank wealth management has increased, and the bond - buying intensity has also risen, which is conducive to the year - end front - running market [60]. - **Funds**: Based on the expectation of monetary easing, funds still have a tendency to front - run at the year - end, but the intensity may weaken due to limited expectations of interest rate cuts [4][5]. 3.2.2 Strategy: Continue to Explore Alpha in the Short Term and Wait for the Year - End Front - Running Market - Before the implementation of the new fund sales regulations, the 10 - year Treasury yield may fluctuate around 1.8%. After the regulations are implemented, the year - end allocation market may drive the yield down slightly [67]. - The 10 - year Treasury is in a volatile market, and the alpha exploration strategy is in its second half. Currently, 3 - 5 - year policy - financial bonds still have room for spread exploration, while the exploration space for 8 - 10 - year local bonds is limited. Attention can be paid to 7 - year China Development Bank bonds and long - term bonds after the supply peak in November [69][72]. 3.3 Interest Rate Bond Market Review: The Bond Market Lacks a Trading Theme and Fluctuates Slightly with the Stock Market - **Overall Market Performance**: In the second week of November, the bond market lacked a trading theme, with its trend following the stock market. The yield of the 10 - year Treasury fluctuated around 1.8%, with a daily fluctuation of less than 1BP [10]. - **Funding Situation**: The central bank conducted large - scale net OMO injections, and the funding situation remained balanced. The weighted average prices of DR001 and DR007 increased, and the issuance price of 1 - year inter - bank certificates of deposit also rose [11]. - **Primary Market Issuance**: The net financing of Treasury bonds and local bonds increased, while that of policy - financial bonds and inter - bank certificates of deposit decreased [85][87][88]. - **Benchmark Changes**: The term spreads of Treasury bonds and China Development Bank bonds both narrowed. The short - end yields of Treasury bonds increased slightly, while the long - end yields decreased slightly. The long - end performance of both Treasury bonds and China Development Bank bonds was better than the short - end [83].

Core Viewpoint - The report from Dongfang Securities indicates that the central bank's renewed mention of "cross-cycle adjustment" suggests a relatively cautious monetary policy stance, with expectations for the banking sector's relative returns to improve in Q4 2025 due to stabilizing interest margins and positive fundamental trends [1][2]. Monetary Policy - The overall monetary policy remains moderately loose, but the central bank's emphasis on "cross-cycle adjustment" indicates a more cautious approach to monetary policy [2]. - With a GDP growth rate of 5.2% in the first three quarters, the necessity for significant policy stimulus has decreased, and the likelihood of major rate cuts is low [2]. Credit Growth - The report suggests that credit growth will continue to decline, with Q4 credit growth expected to remain lower than previous levels due to a larger base effect [3]. - In Q3 2025, credit growth decreased by 0.92 trillion yuan year-on-year, with corporate and household loans also showing declines [3]. Interest Margin - The report emphasizes maintaining reasonable interest rate relationships to support banks' net interest margins, which are expected to stabilize [4]. - As of Q3 2025, listed banks' net interest margins have stabilized, benefiting from a significant reduction in funding costs, while asset yields have decreased [4]. Risk Management - The report highlights the need for an orderly resolution of risks in small and medium-sized financial institutions, with an acceleration in mergers and restructuring expected [5]. - The establishment of a comprehensive macro-prudential management system is emphasized to enhance financial stability [5]. Investment Recommendations - The report suggests focusing on high-quality small and medium-sized banks with solid fundamentals, including specific stocks like Chongqing Rural Commercial Bank and Ningbo Bank [6]. - It also recommends state-owned banks with stable fundamentals and good defensive value, such as Industrial and Commercial Bank of China and Agricultural Bank of China [6].

Investment Rating - The report maintains a "Positive" investment rating for the banking sector, indicating an expectation of relative outperformance compared to market benchmarks [6]. Core Viewpoints - The report highlights a cautious optimism regarding the banking sector's performance in Q4 2025, driven by stabilizing interest margins and improving fundamentals despite external uncertainties [3][4]. - It emphasizes the importance of maintaining a reasonable interest rate spread to support net interest margins, with a focus on effective monetary policy transmission [9][11]. Summary by Sections Investment Recommendations and Targets - The report identifies two main investment lines: 1. High-quality small and medium-sized banks with stable fundamentals, including targets like Chongqing Rural Commercial Bank (601077, Buy), Ningbo Bank (002142, Buy), and Nanjing Bank (601009, Buy) [4]. 2. Large state-owned banks with solid defensive value, such as Industrial and Commercial Bank of China (601398, Not Rated) and Agricultural Bank of China (601288, Not Rated) [4]. Banking Industry Overview - The report discusses the current state of the banking industry, noting a stabilization in interest margins and a cautious approach to monetary policy, with a focus on cross-cycle adjustments to enhance macroeconomic governance [9][11]. - It also mentions the need for a comprehensive macro-prudential management system to address risks in small financial institutions, suggesting that mergers and restructuring may accelerate [11]. Monetary Policy and Financial Conditions - The report indicates that the monetary policy will continue to be moderately accommodative, with a focus on maintaining reasonable growth in financial aggregates and credit [9][10]. - It highlights that the credit growth rate is expected to decline marginally, with a projected loan growth rate of 6.6% in Q3 2025 [9]. Interest Rate Dynamics - The report stresses the importance of maintaining a reasonable interest rate spread, with specific guidelines for banks to avoid issuing loans at rates lower than government bond yields [9][11]. - It notes that as of Q3 2025, the net interest margin for listed banks has stabilized, benefiting from a significant reduction in funding costs [9][11].

Core Viewpoint - The People's Bank of China emphasizes the importance of maintaining reasonable interest rate relationships to enhance the effectiveness of monetary policy and reduce capital arbitrage [1][3]. Group 1: Interest Rate Relationships - The relationship between central bank policy rates and market rates is crucial, as short-term market rates should align closely with policy rates to ensure effective transmission of monetary policy [1]. - The relationship between commercial banks' asset and liability rates indicates that while loan and deposit rates generally move in the same direction, discrepancies can compress banks' net interest margins, affecting their ability to support the real economy [1][2]. - Different types of asset yields, such as loans and bonds, should not diverge excessively for the same entity, and the diversification of financial products necessitates better coordination of interest rates across financial markets [2][3]. Group 2: Term and Risk Premiums - The difference between short-term and long-term interest rates reflects the term premium, and banks should maintain reasonable term spreads in their deposit rates [2][3]. - The relationship between different risk premiums indicates that higher credit ratings should correspond to lower financing costs, and deviations from this principle, such as corporate financing rates being lower than government bond yields, are unsustainable [2]. Group 3: Policy Coordination and Implementation - The central bank has implemented measures to maintain reasonable interest rate relationships, including regulating interest rate pricing and enhancing the linkage between banks' asset and liability rates [3]. - Strengthening policy coordination and ensuring effective execution of interest rate policies are essential for the central bank to facilitate smooth monetary policy transmission [3].

Monetary Policy Overview - The central bank's Q3 2025 monetary policy report maintains a "moderately accommodative" stance, addressing current economic challenges while balancing short-term growth and long-term quality development[1] - The report emphasizes "keeping social financing conditions relatively loose" and "strengthening monetary policy execution and transmission," indicating a shift from "incremental acceleration" to "stock quality improvement" in monetary policy focus[1] Financial Indicators - As of September, the total social financing stock grew by 8.7% year-on-year, while M2 increased by 8.4%, with the RMB loan balance reaching 270.4 trillion yuan, aligning with economic growth and price targets[2] - The weighted average interest rate for newly issued loans fell to 3.24% in Q3, with corporate and personal housing loan rates decreasing by 37 and 25 basis points year-on-year, respectively, easing the financing burden on market entities[2] Economic Context - GDP growth for the first three quarters of 2025 was 5.2%, with overall employment stability, although challenges remain in manufacturing and export growth[2] - Core inflation is stabilizing, with expectations for gradual price recovery as consumption policies take effect[2] Policy Insights - The report includes four sections, with the first highlighting that the RMB loan balance is 270 trillion yuan and social financing stock is 437 trillion yuan, indicating a natural decline in financial growth rates as the economy transitions to high-quality development[2] - The second section clarifies the relationship between base money and broader money supply, suggesting a shift from "quantity expansion" to "interest rate transmission" in monetary policy[4] Interest Rate Dynamics - The fourth section discusses the importance of maintaining reasonable interest rate relationships for macroeconomic balance and resource allocation, addressing recent imbalances caused by market behaviors[4] - The central bank is implementing measures to correct interest rate imbalances, enhancing the effectiveness of monetary policy transmission to the real economy[4]

Report Industry Investment Rating The provided content does not include information about the report industry investment rating. Core Viewpoints - The Q3 monetary policy report affirms the economic achievements in the first three quarters but emphasizes the need to "strengthen and consolidate" the domestic economy due to potential challenges such as a slowdown in economic growth momentum and the complexity of the overseas environment [1][6]. - Monetary policy maintains the general tone of "moderate easing," with the focus potentially shifting towards "stabilizing growth." However, there is still uncertainty regarding the full opening of broad - money space due to factors like the cross - cycle perspective and bank net interest margin pressure [1][10][11]. - There may be two expected differences in the bond market. One is related to the impact of changes in the social financing scale structure on bond supply and demand, and the other is about the relationship between guiding the decline of real - economy financing costs and bond market interest rates [2][16]. Summary by Directory 1. "Moderate Easing" Re - understood 1.1 Economic Stability and Policy Reinforcement - The Q3 report acknowledges the economic achievements in the first three quarters, with the removal of the statement about "striving to achieve the annual economic and social development goals," indicating a reduced sense of urgency. However, it points out that the domestic economy needs "strengthening and consolidation" due to a slowdown in growth momentum and the complexity of the overseas environment [6]. - The report adds "cross - cycle adjustment" to be equally important as "counter - cycle adjustment," aiming to balance short - term growth and long - term goals [7]. 1.2 The "Next Step" of Monetary Policy - Monetary policy continues the general tone of "moderate easing," with the description changing from "implementing in detail" in Q2 to "implementing well" in Q3, which may affirm the effectiveness of the monetary policy implementation since the first half of the year [10]. - The constraints on preventing capital idling have weakened marginally, and the pressure to stabilize the exchange rate has been significantly relieved. The focus of monetary policy may gradually shift to "stabilizing growth," but there is still uncertainty about the full opening of broad - money space [10][11]. - The exchange rate statement in the Q3 report has changed, and the mention of preventing capital idling has been removed, suggesting a potential shift in policy focus towards stabilizing growth while still maintaining some attention on the balance between supporting the real economy and the health of the banking system [11]. - From the perspective of macro - narrative logic and bank interest margins, the space for broad - money needs further expansion. Currently, it is necessary to "keep social financing conditions relatively loose" and give full play to the dual functions of monetary policy tools in terms of quantity and structure [11][12]. 2. Possible Expected Differences in the Bond Market - Regarding the capital side, although there is uncertainty in the use of aggregate tools, there is no need to worry too much as long as liquidity is kept reasonably abundant. Since the second quarter of this year, the capital side has been in a relatively stable and balanced state, and this trend is expected to continue [2][15]. - There are two possible expected differences in the bond market: - First, the current high level of the domestic social financing scale stock and the changing internal structure seem to be beneficial to bond assets in the short term. However, in the long run, there are expected differences. The decline in credit investment may affect the bank's credit creation ability and the demand for bond allocation, while the bond supply may maintain a certain expansion rhythm [2][16][17]. - Second, guiding the decline of real - economy financing costs does not directly lead to a decline in bond market interest rates. The key to guiding the decline of real - economy financing costs lies in structural tools, and the core of the requirement not to issue loans with after - tax interest rates lower than the same - term treasury bond yields is to enhance the linkage between the asset and liability sides of banks and support banks in stabilizing their net interest margins [18][19].

Core Viewpoint - The People's Bank of China (PBOC) emphasizes the importance of maintaining reasonable interest rate relationships to enhance the effectiveness of monetary policy transmission and reduce arbitrage opportunities in the financial system [2][3][8]. Interest Rate Relationships - The report identifies five key interest rate relationships: the relationship between central bank policy rates and market rates, the relationship between asset and liability rates of commercial banks, the relationship between different asset yields, the relationship between short-term and long-term rates, and the relationship between different risk rates [4][5][6]. - The relationship between central bank policy rates and market rates is crucial, as market rates should ideally fluctuate in sync with policy rates to ensure effective monetary policy transmission [4][5]. - The relationship between commercial banks' asset and liability rates indicates that while deposit and loan rates generally move together, discrepancies due to competition and repricing cycles can compress banks' net interest margins, affecting their ability to support the real economy [5][6]. Monetary Policy Framework - The report signals a shift towards a price-based monetary policy framework, focusing on the importance of interest rate relationships in guiding financial resource allocation and supporting the real economy [8][9]. - The PBOC aims to enhance the role of policy rates in influencing market rates, narrowing the interest rate corridor to improve the transmission of monetary policy [8][9]. Future Expectations - Analysts expect that the interest rate gap between different financial instruments will narrow, leading to a more synchronized movement of policy and market rates [8][9]. - The ongoing trend of lowering deposit rates is anticipated to continue, with state-owned banks typically leading the adjustments, followed by smaller banks [10].