Core Viewpoint - The People's Bank of China emphasizes that maintaining economic stability will be crucial for stabilizing the exchange rate, with macroeconomic policies focusing on growth as the primary factor for exchange rate stability [1][2]. Group 1: Exchange Rate Policy - The PBOC aims to keep the RMB exchange rate flexible and stable, reinforcing expectations and preventing excessive fluctuations [1]. - The current economic fundamentals in China are improving, providing a solid foundation for the RMB's stability despite uncertainties in the USD's performance [1][2]. - The PBOC's stance is clear: it will not seek to devalue the RMB for competitive advantages, maintaining the market's decisive role in exchange rate formation [1]. Group 2: Macroeconomic Policy - The macroeconomic policy for the second half of the year will focus on stabilizing growth through increased fiscal support, monetary easing, and efforts to stabilize the real estate market [1]. - This approach is expected to mitigate external volatility's impact on the domestic economy and provide crucial support for the RMB exchange rate [1]. Group 3: Cross-Border Capital Flow Management - Experts suggest that China should enhance macro-prudential management of cross-border capital flows and guide expectations to manage the complexities of international capital movements [3]. - The anticipated easing of monetary policy in major economies may lead to increased capital inflows into China, supporting its capital markets [3]. - There is a need for close monitoring of cross-border capital flows to balance higher levels of foreign exchange openness with the support of the real economy and the prevention of external shocks [3].

Core Viewpoint - The report emphasizes the need for China to promote a diversified, equitable, and stable international monetary system in response to rising uncertainties in the current international monetary framework, highlighting the dual trends of fragmentation and diversification [1] Group 1: International Monetary System - The current international monetary system is experiencing increased uncertainty, with the U.S. dollar's dominance unlikely to collapse in the short term, but future developments may lead to a more fragmented and diversified system [1] - China should push for the diversification of reserve currencies to enhance the safety of foreign exchange reserves and cautiously advance the internationalization of the Renminbi [1] Group 2: U.S. Treasury Bonds - In March 2025, China reduced its holdings of U.S. Treasury bonds by $18.9 billion, bringing its total holdings down to $765.4 billion, thus falling from the second-largest to the third-largest holder [2] - The report suggests optimizing the strategy for holding U.S. Treasury bonds by flexibly adjusting the duration and constructing a diversified reserve system to enhance economic and financial resilience [2] Group 3: Renminbi Internationalization - The report identifies the internationalization of the Renminbi as a crucial direction, focusing on countries along the Belt and Road Initiative and RCEP regions [2] - It recommends increasing the use of the Renminbi in trade settlements and investment activities in neighboring countries to enhance its acceptance and influence [2] Group 4: Stablecoins - The global stablecoin market is experiencing significant growth, particularly with U.S. dollar-pegged stablecoins extending their influence into traditional finance [3] - The report advocates for China to recognize and respond to this trend by exploring stablecoin applications through regulatory sandboxes and enhancing research in this area [3] Group 5: Regional Financial Cooperation - The report calls for the establishment of a regional financial safety net and strengthening financial cooperation with neighboring partners such as ASEAN and the Shanghai Cooperation Organization [3] - It emphasizes the need for a robust internal financial risk prevention system, including macro-prudential management frameworks and monitoring of cross-border capital flows [3]

Economic Performance - In May, the industrial added value of large-scale enterprises increased by 5.8% year-on-year, while the total retail sales of consumer goods reached 41,326 billion yuan, growing by 6.4% year-on-year [1] - The total import and export value of goods was 38,098 billion yuan, with a year-on-year increase of 2.7% [1] Trade and Export Dynamics - The diversification strategy of China's export markets has shown effectiveness against the backdrop of trade frictions, with private enterprises expected to continue leading as the largest foreign trade entity [1][9] - In May, high-end manufacturing exports, including electromechanical products and integrated circuits, grew significantly by 7.4%, with private enterprises accounting for 57.1% of total foreign trade, marking a record high [9][10] Consumer Market Recovery - The retail sales growth in May reached 6.4%, the highest since 2024, driven by government subsidies, the early promotion of the "618" shopping festival, and holiday effects [3] - The "old for new" policy for consumer goods has positively impacted sales, particularly in home appliances and communication equipment, with significant year-on-year growth rates [3] Real Estate Market Trends - The real estate market is still in an adjustment phase, with ongoing efforts to stabilize and restore market confidence [2][6] - New housing prices in major cities have seen a narrowing of year-on-year declines, indicating a potential stabilization in the market [6][7] Policy Recommendations - It is suggested to enhance support for private enterprises in technology innovation and brand building, shifting foreign trade development from "price competition" to "quality competition" [1][10] - The government is encouraged to implement localized standards for "good housing" to improve residential quality and adapt to regional differences [8]

Report Industry Investment Rating - Not provided in the content Core Viewpoints of the Report - The bond market in 2025 has entered a state of "low interest rates + narrow spreads + high volatility," and in the second half of the year, there may be two characteristics: the return of the pricing anchor and a favorable period for action from June to August [4]. - External demand expectations are volatile, but the bond market mainly prices domestic demand. The core contradiction in the domestic economy lies in shrinking demand and weakening expectations, with insufficient endogenous economic momentum [4][138]. - The focus of monetary policy in 2025 is different from that in 2023 - 2024, emphasizing seizing opportunities, considering both domestic and external factors, and effectively stabilizing asset prices [5]. - The pricing anchor has returned, and the policy rate determines funds, which in turn price bonds. June - August is a good window for long - position operations in the bond market [7]. Summary by Relevant Catalogs 1. Analysis of the Bond Market Trend from January to Date and Its Macroeconomic Logic - **Market Trends in Different Periods**: In Q1 2025, tight funds and significant bank liability pressure led to a bond market correction; in Q2, repeated tariff expectations and reserve requirement ratio and interest rate cuts caused yields to decline rapidly to a low level and then fluctuate [44]. - **New Features of the Bond Market in 2025**: The central bank's policy rate has become the floor of the money market; short - term bonds perform weakly and are more affected by funds, while long - term bonds have larger fluctuations and are difficult to grasp; the overall fundamentals are stable, but tariff pulses have a significant impact, and the stock and bond markets are greatly influenced by short - term risk preferences [36][43][44]. - **Credit Spreads and Strategies**: The credit spreads of medium - term notes and commercial bank secondary capital bonds have compressed. For credit spreads to return to the low point in August 2024, liquidity easing expectations need to be fulfilled, and liability expansion is required [23][44]. - **Performance of Duration Strategies**: Duration strategies in 2025 have not achieved stable returns, with inconsistent performance in different months [24][26]. - **Asset Returns Reflecting Expectations**: In 2025, the bond market rose while the stock market fell, and the difficulty of bond market timing has increased. Economic pessimistic expectations have been somewhat revised [27][29][32] 2. Changes in External and Domestic Demand and the Core Contradictions in the Bond Market - **External Demand and the "Triffin Dilemma"**: The core of the "Triffin Dilemma" is the long - term coexistence of the global nature of the US dollar's credit and trade deficits. The US faces dual deficits (trade deficit + fiscal deficit), which are more important than tariffs. The US dollar's high valuation affects its export competitiveness, and the demand for US Treasuries is weak, while the supply pressure of refinancing at maturity persists [55][61][138]. - **The "Sea Lake Manor Agreement"**: It aims to restructure global trade through tariffs, weaken the value of the US dollar, and reduce the debt scale and borrowing costs in the US Treasury market. Specific measures may include replacing foreign - held US Treasuries with ultra - long - term zero - coupon bonds and asking countries to cooperate in lowering the US dollar exchange rate [66]. - **US Economic Situation**: US consumer spending has weakened, corporate inventories have increased, and inflation expectations remain high. Tariff impacts may gradually appear in the second and third quarters of 2025, and China's external demand may further decline [67][68][69]. - **Exchange Rate and Domestic Policy**: The exchange rate factor no longer poses a rigid constraint on domestic monetary easing. Short - term "rush to export" supports external demand, but it is likely to decline in the medium term, and the bond market mainly prices domestic demand [77][86][138]. - **Domestic Economic Core Contradictions**: The core contradictions in the domestic economy are shrinking demand and weakening expectations, with insufficient endogenous economic momentum. Demand contraction is characterized by low prices and weak consumption willingness. Expectations are weakening for both residents and enterprises [88][92][138]. - **New and Old Economic Momentum Switching**: The domestic economy is undergoing a switch between new and old economic momentum. The influence of old momentum on the economy is weakening, while the influence of new momentum is accelerating but still has a low proportion [109][112][115]. - **Domestic Policy and Economic Rebound**: Fiscal policy is playing an increasingly active role, and the coordination between monetary and fiscal policies has entered a new stage. However, local governments are still mainly focused on debt resolution. The pressure of asset shortage has been alleviated but not completely eliminated [116][123][138] 3. Central Bank Liquidity: Loose Trading vs. Macro - Prudential Management - **Differences in Monetary Policy Focus**: In 2023, the focus was on reserve requirement ratio and interest rate cuts to support post - pandemic economic recovery; in 2024, it was to promote the transformation of the monetary policy regulatory framework and remove obstacles to interest rate decline; in 2025, it emphasizes seizing opportunities, considering both domestic and external factors, and stabilizing asset prices [5][141][146]. - **Concerns about Liquidity in the Second Half of the Year** - **Reducing Liability Costs**: Deposit transfer disturbances have attenuated; the reset of time deposits may relieve bank liability costs starting from September 2025; if the Q2 research value of the insurance预定 rate remains below 2.25%, the insurance预定 rate may be lowered in Q3 [164][167][175]. - **Reserve Requirement Ratio and Interest Rate Cuts**: There may be a 10 - 20bps interest rate cut in the second half of the year, mainly triggered by the need to support the real estate market. A 50bps reserve requirement ratio cut may be necessary in the second half of the year if the economic data in Q3 are still volatile [180][184]. - **Central Bank Bond Purchases**: The resumption of central bank bond purchases may be approaching, and the purchase intensity may be significant during the second wave of net supply peaks (likely from August to September) [188]. - **Funds Rate Pricing**: The policy rate may become the implicit lower limit of the funds rate [189]. - **Relationship between Loose Trading and Macro - Prudential Management**: In Q1 2025, macro - prudential management played a role in releasing bond market risks, while in Q2, loose trading took precedence. Attention should be paid to whether macro - prudential management will regain the upper hand after the end of loose trading around Q4 [6]. - **Future Monetary Policy Reform Measures**: Consider narrowing the interest rate corridor and reforming the reserve requirement system [6] 4. Return of the Pricing Anchor and the Favorable Period for Action - **Return of the Pricing Anchor**: Open Market Operations (OMO) has become the implicit lower limit of funds, and certificates of deposit (CDs) have become the implicit lower limit of 10 - year Treasury bonds. The conditions for the decline of CDs are likely to be met in Q3 2025 [7]. - **Favorable Period for Action**: June - August is a good window for long - position operations in the bond market. The bond market strategy should focus on liquidity - favorable areas and band - trading opportunities. The yield - to - maturity (YTM) of 10 - year Treasury bonds is expected to be in the range of 1.5% - 1.7% in the next quarter and 1.4% - 1.8% in the next half - year [7]. - **Asset Allocation in the Second Half of the Year**: Convertible bonds > medium - and short - term credit risk - taking > interest rate duration extension in the fixed - income asset allocation in the second half of the year [7]