Report Industry Investment Rating - Not provided in the content Core Views of the Report - The bond market in 2025 presents a "stair - climbing" market rhythm. The current liquidity has returned to normal, but long - term bonds have limited odds due to certificate of deposit (CD) prices. The liquidity is expected to remain loose in July. The policy may return to discretionary decision - making. The yield of CDs in June followed a logic of negative factors not materializing, and the balance decreased. The decline in liability costs may benefit the bond market. The "low - interest rate + low - spread" bond market makes it difficult to obtain excess returns, and the 10 - year Treasury yield in July may operate in the range of 1.6% - 1.7% [3][4][6] Summary by Relevant Catalogs 1. 1月至今债市走势分析及其宏观逻辑 (Analysis of the bond market trend and its macro - logic from January to date) - **2025Q1**: Economic expectations improved, from tight funds to tight CDs, long - term bonds corrected, and equities and commodities strengthened [3][31][42] - **April 2025**: The external environment deteriorated, liquidity turned loose, the bond market quickly went bullish, and equities and commodities performed weakly [3][31][42] - **May - June 2025**: Reserve requirement ratio cuts and interest rate cuts were implemented. After the bond market declined to a low level, there was no significant adjustment risk, but capital gains narrowed in the volatile market, and the focus was on exploring spreads. Equities and commodities performed well due to reduced geopolitical risk concerns [3][31][42] - **June 2025 bond market characteristics**: It was a peak period for government bond supply. With the coordination of monetary and fiscal policies, funds were unexpectedly loose. Trading desks actively reserved duration to bet on capital gains, but allocation desks considered the low absolute yield level, and the attractiveness of the bond market weakened. Fundamental data was mixed, with some signs of improvement in consumption, but it was still restricted by fiscal stimulus in the future [3][37][41] - **Treasury yield curve**: In June, the 10Y - 1Y Treasury term spread expanded as loose funds drove down the short - end, but the 30Y - 10Y term spread remained in a low - level shock, reflecting the correction of pessimistic liquidity expectations and still - pessimistic fundamental expectations [20] - **Credit spreads**: In June, the credit spreads of low - grade secondary perpetual bonds compressed, while the credit spreads of medium - term notes expanded, which was related to institutional credit - sinking strategies and the seasonal absence of credit bond allocation power due to wealth management funds returning to the balance sheet [21][25] - **Duration strategy**: Holding long - duration Treasury bonds has not been a good experience in 2025, with monthly declines often wiping out previous monthly gains [26] 2. 流动性与负债成本：从悲观预期修正到回归常态化 (Liquidity and liability costs: From the correction of pessimistic expectations to the return to normalization) - **June liquidity**: The funds were unexpectedly loose in June. Among 20 working days, DR001 ran below the policy rate for 15 days. The supporting factors included exchange - rate appreciation pressure, the arrival of 520 billion yuan in capital injections for four major banks in June, and other normal factors such as end - of - half - year care and fiscal bond - issuance care [4][51][56] - **July liquidity**: The situation of dealing with appreciation pressure is likely to continue. The net financing of government bonds in July may not be small, and the central bank may continue to provide support. Attention should be paid to the potential disturbance of the tax - payment peak in July. The maturity scale of medium - and long - term liquidity in July is 1.4 trillion yuan [4][59][61] - **Monetary policy clues in Q2 2025**: The policy may return to discretionary decision - making. The statement on the bond market and exchange rate in the Q2 meeting of the Monetary Policy Committee has changed, which may imply that it is difficult for the 10 - year Treasury bond to break through the previous low before the next interest - rate cut [66] - **CDs in June**: The yield of CDs in June followed a logic of negative factors not materializing, with both volume and price decreasing, and the balance also declined. The reasons for the limited decline in CD yields included the record - high maturity volume in June, the seasonal increase in demand for liabilities in June, and the restriction of allocation ability due to wealth management funds returning to the balance sheet [4][74][78] - **CDs in July**: Bullish factors may prevail, and the yield of 1Y AAA CDs may fall back to the range of 1.55% - 1.60% [4][82][84] - **Decline in liability costs - Bank deposits**: The acceleration of deposit term - to - maturity in 2022 may benefit the reset of bank liability costs in 2025. The maturity distribution of deposits of the six major banks in 2025 is 22.11 trillion yuan in Q1 and 30.28 trillion yuan from Q2 to Q4 [4][90] - **Decline in liability costs - Insurance**: In August 2024, when the insurance policy - reserve interest rate was lowered, there was an obvious effect of boosting premium scale, and the secondary bond - buying scale of insurance institutions also increased significantly. In 2025, further reduction of the insurance policy - reserve interest rate may bring incremental funds to the bond market (with the greatest impact on local government bonds), but the diversion effect of the stock market needs to be noted [4][93][100] 3. 内需偏弱的根源 (Reasons for the weak domestic demand) - **Weak economic characteristics**: Both investment and consumption demands are weak. Residents' income expectations are weak, and consumption demand is low, in a negative feedback state. In the short term, the demand gap of old growth drivers may be difficult to fill with new growth drivers. The downward pressure on prices continues, with both the GDP deflator and PPI remaining in the negative range for a long time, indicating the restriction of insufficient demand [106][111][114] - **Weak domestic demand**: High - frequency data shows that both the consumption and investment ends of domestic demand are significantly weaker than in previous years [116] - **Unstable exports**: High - frequency data shows that port throughput - related indicators are approaching last year's levels, indicating a possible decline in foreign - trade growth. In the past few years, although export volume has increased, the contribution of falling export prices and exchange rates to export growth is large, and this pattern may not be sustainable in the long term. High interest rates and uncertain trade environments have led to signs of weakening overseas economies [120][124][127] - **Price and policy**: Promoting price recovery remains the policy focus, but prices may continue to bottom out in Q3, and inflation improvement may not occur until Q4. Fiscal policy may be intensified in Q4, but in the short term, it is beneficial to the bond market [130][133][136] 4. 债市"走楼梯" 行情的新特征 (New characteristics of the "stair - climbing" bond - market trend) - **Difficulty in obtaining excess returns**: In the "low - interest rate + low - spread" bond - market environment, it is difficult to obtain excess returns. The attractiveness of allocation desks decreases, and the trading enthusiasm of trading desks also declines. However, trading desks can still seek capital gains through timing in the volatile market [140][142][144] - **Risk preference and interest - rate relationship**: Since 2023, the yield of 10 - year Treasury bonds has declined unilaterally, but the most attractive sectors in the stock market are "quasi - fixed - income" high - dividend targets. The co - existence of falling risk - free rates and rising risk preferences may occur when there is only policy support but no obvious improvement in fundamentals [145][147] - **Bond - fund duration and market adjustment**: When bond funds consistently increase duration, the instability of the bond market increases, but adjustment does not necessarily occur, often requiring external forces such as tight funds or unexpected fundamentals to break the market balance. Fund duration reaching a high level and then showing a consistent signal of increasing duration may be a necessary but not sufficient condition for bond - market adjustment [149][150][155] - **Obstacles to interest - rate decline**: The core obstacle to interest - rate decline is the existence of better assets compared to 10 - year Treasury bonds, including the possible delay in policy - rate cuts, the expansion of overseas investment space, and the expansion and capital diversion of the high - dividend equity market [156][160] - **Investment opportunities**: The bond market is still in a bullish window, but the odds are limited. In the short term, the trading logic of exploring spreads may continue. Local government bonds currently have high cost - effectiveness, the spread fluctuations of ultra - long - term credit bonds are worthy of attention, and positive - arbitrage opportunities in Treasury - bond futures may emerge when carry narrows [163][166] - **Potential factors**: Bullish factors for the bond market include an unexpected decline in the real - estate market, monetary - policy reform, and the central bank restarting bond purchases. Potential risks include strengthened macro - prudential supervision, unexpected deterioration of tariffs, and price recovery after the effectiveness of anti - involution policies [165]

Core Viewpoint - The five-year large denomination certificates of deposit (CDs) are becoming increasingly rare as major banks like Industrial and Commercial Bank of China, China Merchants Bank, and CITIC Bank have begun to withdraw these products from the market, indicating a strategic shift in response to declining interest margins [1] Group 1: Market Trends - Major banks and some city commercial banks have removed five-year large denomination CDs from their offerings, with some banks reducing the maximum term for available CDs to two years [1] - This trend reflects banks' proactive adjustments to manage declining interest margins and to lower funding costs [1] Group 2: Strategic Adjustments - Banks are lowering the interest rates on long-term large denomination CDs and even suspending the issuance of three- and five-year products to avoid locking in high-interest liabilities [1] - The aim of these adjustments is to mitigate the risk of future cost and revenue mismatches in funding [1]

Core Viewpoint - The trend of major banks in China, including Industrial and Commercial Bank of China, China Merchants Bank, and CITIC Bank, is to withdraw five-year large denomination certificates of deposit (CDs) and shorten the maximum term of available CDs to two years, in response to declining interest margins [1][3]. Group 1: Bank Actions - Major banks are actively reducing long-term liabilities by lowering the interest rates on long-term large denomination CDs or even suspending the issuance of three and five-year products to mitigate the risk of future cost-revenue inversion [1][4]. - As of recent searches, five-year large denomination CDs are no longer available on the apps of major state-owned banks, with the longest available term being three years at a rate of 1.55% [1]. - China Merchants Bank has also removed three and five-year large denomination CDs from sale, currently offering only products with terms of two years or less, with rates below 2.15% [3]. Group 2: Interest Rate Trends - The average interest rates for one-year, two-year, three-year, and five-year large denomination CDs are reported as 1.719%, 1.867%, 2.197%, and 2.038% respectively, indicating a general decline in rates [4]. - The interest rates for three-year large denomination CDs have decreased by approximately 80 basis points compared to the same period in 2024, with current rates concentrated between 1.55% and 1.8% [3]. - The latest seven-day annualized yield for Tianhong Yu'ebao has reached 1.18%, which is close to the one-year large denomination CD rate of 1.2%, highlighting the diminishing advantage of large denomination CDs in terms of interest rates [3]. Group 3: Industry Context - The banking sector is currently facing low net interest margins, with the net interest margin further declining to 1.43% in the first quarter of 2025, down 9 basis points from the end of 2024 [4]. - The pressure on net interest margins is exacerbated by the continuous decline in loan yields due to multiple reductions in the Loan Prime Rate (LPR), while the trend of increasing fixed-term deposits intensifies the burden of high-interest liabilities [4][5]. - The suspension of five-year large denomination CDs and the reduction of medium to long-term deposit products are necessary measures for banks to lower funding costs and stabilize net interest margins [5].

Summary of Key Points from Conference Call Industry Overview - The conference call primarily discusses the fixed income market and interest rate trends in the context of the broader financial environment in China, particularly focusing on government bonds and corporate financing costs. Core Insights and Arguments - **Interest Rate Trends**: There is a prevailing expectation that interest rates will continue to decline, with current rates for certain bonds nearing historical lows. For instance, the rate for 30-year government bonds is approximately 1.9% and for corporate bonds like Shidai New Materials, it is around 1.66% [3][12]. - **Market Dynamics**: The decline in interest rates is attributed to easing concerns at the end of the quarter and the central bank's liquidity support. Banks have been buying older bonds, especially short-term ones, due to reduced pressure on profitability [2][4]. - **Impact of Deposit Rates**: The rapid decrease in deposit rates, with major banks reducing rates by 50 to 70 basis points, has significantly lowered overall funding costs in the market. This trend is expected to continue, further affecting fixed income asset yields [7][8]. - **Corporate Financing Costs**: As corporate financing costs decrease, financial institutions face challenges in balancing liabilities and net interest margins. The decline in funding costs is a key factor driving down overall market yields [6][10]. - **Broad vs. Policy Interest Rates**: Broad interest rates, which include yields on loans and other alternative assets, are more reflective of market conditions than policy rates, which tend to lag behind. Currently, actual funding costs are higher than the policy benchmark by approximately 1.4% [5][12]. - **Future Market Expectations**: The market anticipates a new downward phase for interest rates, driven by changes in supply and demand dynamics and increased liquidity from the central bank. The government bond supply is expected to slow down in the third quarter [3][14]. Additional Important Insights - **Insurance Sector Impact**: The insurance industry has seen a reduction in preset rates to around 2.13%, which may further decrease, affecting the cost of liabilities and the return expectations for financial institutions [10]. - **Net Interest Margin Trends**: Banks have experienced a decline in net interest margins, with the average dropping to about 1.4% in the first quarter, indicating pressure on profitability due to lower asset yields [11]. - **Trade Negotiations**: The impact of U.S.-China trade negotiations on the Chinese bond market is considered limited in the short term, with a focus on actual trade data rather than negotiation progress. Investors are advised to adopt strategies that leverage short-term positions while extending duration on long-term bonds [15].

Core Viewpoint - The company reported a slight decline in revenue for Q1 2025, but maintained positive growth in net profit and net interest income, indicating stability in its financial performance despite challenges in non-interest income [1][2]. Financial Performance - Q1 2025 revenue growth rate was -1.0%, while net profit growth rate was +1.5% and net interest income growth rate was +2.5% [1]. - Non-interest income decreased by 6.8%, with fee income down by 2.4% [2]. - Credit costs improved, with credit impairment losses down by 12% year-on-year, contributing to net profit growth that outperformed the average of major banks [2]. Scale and Growth - Total assets grew by 2.6% compared to the beginning of the year, with loans increasing by 4.2%, adding 116.9 billion [2]. - Retail loans showed stable growth, particularly in housing, consumer, and business loans, while credit card loans contracted due to seasonal factors [2]. Interest Margin - The net interest margin for Q1 was 1.23%, a decrease of 4 basis points compared to the full year of 2024, but the decline was less than that of peers [3]. - The cost of liabilities improved significantly, with the deposit cost rate down by 21 basis points year-on-year, helping to stabilize the interest margin [3]. Non-Interest Income - Non-interest income saw a decline of 2.4%, but the decrease is expected to stabilize, particularly in wealth management-related fees [3]. - Other non-interest income dropped by 10.6%, primarily due to losses from fair value changes influenced by bond market fluctuations [3]. Asset Quality - The non-performing loan (NPL) ratio decreased by 1 basis point to 1.30%, with a stable provision coverage ratio of 200% [1][4]. - Personal loan NPL ratio increased by 10 basis points to 1.18%, indicating rising risks in retail loans, although the overall impact on total NPL generation is expected to be limited [4]. Investment Outlook - The company is positioned as a stable dividend asset with high dividends and low valuation, projecting a dividend yield of 4.3% for A shares and 5.2% for H shares [4]. - The current price-to-book (PB) ratios for A and H shares are 0.57x and 0.48x, respectively, supporting a "buy" rating [4].

Investment Rating - The report maintains a "Buy" rating for Chengdu Bank, indicating an expectation that the stock will outperform the market index by more than 15% in the next six months [10]. Core Insights - Chengdu Bank reported a revenue of 22.982 billion yuan in 2024, a year-on-year increase of 5.89%, and a net profit attributable to shareholders of 12.858 billion yuan, up 10.17% year-on-year [3][6]. - In Q1 2025, the bank achieved a revenue of 5.817 billion yuan, reflecting a growth of 3.17%, and a net profit of 3.012 billion yuan, which is a 5.64% increase year-on-year [3][6]. - The bank's asset quality remains strong, with a non-performing loan ratio of 0.66% and a provision coverage ratio of 456% as of Q1 2025 [6][8]. Summary by Sections Financial Performance - Chengdu Bank's total assets, loans, total liabilities, and deposits grew by 13.25%, 17.26%, 12.87%, and 15.60% respectively in Q1 2025, compared to 14.56%, 18.99%, 14.15%, and 13.51% in 2024 [6]. - The net interest margin for 2024 was 1.66%, down 15 basis points year-on-year, while the asset yield was 3.84%, down 18 basis points [6][8]. Investment Valuation - The expected earnings per share (EPS) for 2025 is projected at 3.23 yuan, with a price-to-earnings (PE) ratio of 5.34 times [9]. - The bank's projected book value per share (BVPS) for 2025 is 21.51 yuan, leading to a price-to-book (PB) ratio of 0.80 times at the current stock price [9]. Dividend and Returns - Chengdu Bank plans to distribute a dividend of 0.89 yuan per share for 2024, resulting in a dividend yield of 5.16% based on the closing price on April 29, 2025 [6][9].