Core Viewpoint - The bond market is experiencing a strong consolidation phase, with fluctuations in yields and a net withdrawal of liquidity from the market, influenced by the recent news on VAT collection and profit-taking by investors [1][5]. Market Performance - The majority of government bond futures closed higher, with the 30-year main contract down 0.04% at 119.330, while the 10-year main contract remained flat at 108.555 [2]. - The interbank yield on the 10-year government bond increased by 0.25 basis points to 1.797%, while the yield on the 10-year treasury bond decreased by 0.5 basis points to 1.6975% [2]. Overseas Bond Market - In North America, most U.S. Treasury yields rose, with the 2-year yield up 4.9 basis points to 3.720% and the 10-year yield up 1.17 basis points to 4.208% [3]. - In Asia, Japanese bond yields increased across the board, with the 10-year yield rising by 2.9 basis points to 1.503% [3]. - In the Eurozone, the 10-year French bond yield rose by 0.1 basis points to 3.283%, while the 10-year German bond yield fell by 0.1 basis points to 2.621% [3]. Primary Market - The Ministry of Finance reported weighted average winning yields for 91-day, 182-day, and 1-year government bonds at 1.2110%, 1.3019%, and 1.3277%, respectively, with bid-to-cover ratios of 3.31, 2.7, and 2.7 [4]. - Agricultural Development Bank's financial bonds had winning yields below market estimates, with 1.074-year, 3-year, 5-year, and 10-year yields at 1.39%, 1.61%, 1.69%, and 1.82%, respectively [4]. Liquidity Conditions - The central bank conducted a 7-day reverse repurchase operation of 1385 billion yuan at a rate of 1.40%, resulting in a net withdrawal of 1705 billion yuan for the day [5]. - Short-term Shibor rates mostly increased, with the overnight rate rising by 0.1 basis points to 1.316% [5]. Institutional Perspectives - Industry analysts suggest that the current convertible bond valuations are nearing historical highs, indicating limited downside potential and possible breakout opportunities [6]. - The outlook for August indicates that central bank liquidity is expected to remain reasonably ample, with funding rates likely to stay low, although regulatory goals may prevent further declines [6]. - Analysts anticipate that the market's trading focus may shift as the impact of anti-involution policies is validated by data, with interest rates expected to stabilize [6].

Core Viewpoint - The bond market is experiencing strong fluctuations, with short-term impacts from tax adjustments, but the medium to long-term outlook remains supported by fundamentals, liquidity, and demand for allocation [1] Market Performance - On August 5, the bond market showed a strong upward trend, with government bond futures mostly rising. The 30-year main contract increased by 0.06% to 119.320, while the 10-year main contract rose by 0.05% to 108.540 [2] - The yield on the 30-year government bond decreased by 0.25 basis points to 1.914%, and the yields on the 10-year government bonds fell by approximately 0.5 basis points [2] Overseas Bond Market - In North America, U.S. Treasury yields collectively fell, with the 10-year yield down by 2.35 basis points to 4.196% [3] - In Asia, Japanese bond yields also declined, with the 10-year yield down by 3.9 basis points to 1.47% [3] - In the Eurozone, the 10-year French bond yield decreased by 6.3 basis points to 3.282% [3] Primary Market - The China Development Bank's three financial bonds had winning yields below the China Bond valuation, with yields for 2-year, 5-year, and 10-year bonds at 1.5255%, 1.6408%, and 1.7546% respectively [4] - Agricultural Development Bank's 2-year financial bonds had winning yields of 1.5550% and 1.7033% [4] Liquidity and Funding - The central bank conducted a 7-day reverse repurchase operation of 160.7 billion yuan at a rate of 1.40%, resulting in a net withdrawal of 288.5 billion yuan for the day [5] - The Shibor short-term rates mostly declined, with the overnight rate rising slightly by 0.1 basis points to 1.315% [5] Institutional Views - Longjiang Fixed Income expects liquidity to remain reasonably ample in August, with funding rates likely to stay low, but regulatory goals may prevent further declines [7] - CITIC Securities notes that the bond market is experiencing a significant bearish steepening trend, with expectations for stabilization in interest rates [7] - Huatai Fixed Income suggests a flexible approach to trading, with a focus on opportunities above a 10-year government bond yield of 1.7% [7]

Summary of Conference Call Notes Industry Overview - The conference call discusses the impact of the cancellation of the value-added tax (VAT) exemption on government bonds, local bonds, and financial bonds in the bond market, focusing on the long-term mechanisms and stability of the bond market [1][3][4]. Key Points and Arguments 1. **Cancellation of VAT Exemption**: The removal of the VAT exemption for government bonds aims to promote the long-term mechanism of the bond market and prevent unilateral declines. This is expected to increase the overall yield curve in the long term [1][3][4]. 2. **Short-term Benefits for Existing Bonds**: Existing bonds will continue to enjoy the VAT exemption during a transition period, providing a temporary benefit to holders of these bonds [1][3][5]. 3. **Impact on Fiscal Revenue**: The cancellation of the VAT exemption is projected to increase fiscal revenue by approximately 50 billion, but it will also raise the cost of issuing bonds, favoring central government finances over local governments [1][7]. 4. **Market Reactions**: Initial market reactions to the policy change included a rise in yields by 1 to 2 basis points, but yields quickly fell back to 1.69% as the market recognized the benefits for existing bonds [3][5]. 5. **Central Bank's Role**: The central bank is focused on maintaining a relatively loose liquidity environment while preventing excessive capital turnover, with overnight funding rates expected to remain between 1.37% and 1.4% [1][9]. 6. **Long-term Risks**: The central bank is concerned about long-term risks associated with unilateral declines in the bond market, which could lead to significant financial instability if not managed properly [2][11]. 7. **Investor Advantages**: Investors holding a larger number of existing bonds are at an advantage in the current market, as they will not need to purchase new bonds for the next few years [5][6]. 8. **Credit Bonds Performance**: The performance of credit bonds is expected to improve as the credit spread is likely to narrow, especially if all government bonds are subject to taxation [6]. 9. **Public Fund Tax Exemption**: The likelihood of canceling the tax exemption for public funds in the short term is low, which is favorable for outsourced business operations [8]. 10. **Market Sentiment**: The current market sentiment is relatively positive, with expectations of a fluctuating bond market in the near term [12]. Additional Important Content - **Definition of Capital Turnover**: Capital turnover refers to funds circulating within the financial system without effectively flowing into the real economy, which is a concern for regulators [10]. - **Banking Sector Leverage**: High leverage in the banking sector can contribute to capital turnover, impacting the bond market negatively if not controlled [10]. - **Future Market Predictions**: The bond market is expected to experience fluctuations, with specific yield levels indicating potential actions for investors [12]. This summary encapsulates the critical insights and implications from the conference call regarding the bond market and related fiscal policies.

Group 1 - The recent focus on financial "anti-involution" is aimed at addressing the disorderly competition within the financial industry to improve service quality [1] - Experts emphasize the need for a balance between supporting economic growth and preventing risks, advocating for rational competition and stability in the financial system [1] - From a macro perspective, policies should enhance support for the real economy while maintaining the stability of banking operations [1] Group 2 - Future monetary policy should adopt a more refined balance strategy between "stabilizing growth" and "preventing risks," avoiding excessive easing that could lead to long-term risks [2] - The central bank plans to strengthen the execution and supervision of interest rate policies to maintain healthy competition in the deposit and loan markets [2] - Measures may include enhancing self-discipline mechanisms for interest rate pricing and improving the assessment systems for financial institutions [2] Group 3 - The central bank aims to continue supporting local government financing platforms and manage risks in key areas [3] - A macro-prudential management framework will be improved to monitor risks in local government debt, small financial institutions, and real estate credit [3] - Different policies and tools will be employed to address risks in three key areas, including extending financial support for debt restructuring [3]

Core Viewpoint - The net interest margin (NIM) of commercial banks has become a focal point in discussions about potential monetary policy easing in the second half of the year, particularly as it reached a new low of 1.43% in Q1 2023, reflecting intense competition and disorder in the lending market [1][2] Summary by Sections Monetary Policy and Net Interest Margin - The People's Bank of China emphasizes the need to balance support for economic growth with the health of the banking sector, as the NIM may constrain further interest rate cuts [1][2] - The NIM has been under pressure, declining from 2.08% in Q4 2021 to 1.43% in Q1 2023, primarily due to a low interest rate environment and a continuous decline in the Loan Prime Rate (LPR) [2] Competition and Financial Stability - The intensification of "involution" competition within the financial industry has raised concerns about the stability of the financial system, necessitating regulatory measures to curb excessive competition and ensure reasonable interest rates [3][4] - The central bank's recent meetings have focused on addressing issues related to capital turnover and the chaotic competition within the financial sector [3][4] Balancing Growth and Risk Prevention - Experts suggest that maintaining NIM stability is crucial for future monetary policy easing, as further declines could impact banks' sustainable development and their ability to support the real economy [2][5] - A more refined balance between "stabilizing growth" and "preventing risks" is necessary, with a focus on avoiding excessive monetary easing that could lead to long-term risks [6][7] Regulatory Measures and Future Outlook - The central bank plans to enhance the execution and supervision of interest rate policies to maintain healthy competition in the lending market and improve the transmission of monetary policy [6][7] - Ongoing efforts will include monitoring key financial risks and implementing targeted policies to address issues in local government financing platforms and other critical areas [7]

Group 1: Macro Overview - In June 2025, new social financing (社融) reached 4.20 trillion, up from 2.29 trillion previously, with a year-on-year growth of 8.9% compared to 8.7% before[1] - M2 growth was 8.3% year-on-year, an increase from 7.9% previously, while new M1 (新口径) grew by 4.6% compared to 2.3% before[1] - The current market logic reflects a "look at stocks, act like bonds" approach rather than a dual bull market for stocks and bonds, primarily driven by the relocation of household deposits[1] Group 2: Liquidity and Policy Implications - The current liquidity easing is mainly driven by policy rather than economic improvement, leading to strong market expectations for further central bank easing[2] - The central bank's probability of further easing is decreasing unless triggered by significant adverse economic events or market shocks[2] - Future central bank actions may focus more on structural adjustments rather than broad monetary easing, aiming to stabilize liquidity in both stock and bond markets[2] Group 3: Financial Data Insights - In June, corporate loans increased by 1.77 trillion, a year-on-year increase of 1.4 trillion, while household loans rose by 597.6 billion[1] - The social financing scale in June showed an increase of 4.2 trillion, with a year-on-year growth of 8.9%, reflecting a significant rise in government bond issuance[1] - The total amount of deposits increased by 3.21 trillion in June, with household deposits rising by 2.47 trillion, indicating a strong inflow into the banking system[1]

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - In July, the overall capital gap pressure may be seasonally large, with a liquidity gap of around 2.4 trillion yuan. The fiscal disturbances are likely to be concentrated in the second half of the month. After a slight easing at the beginning of July, the funds will converge upwards, and the room for further easing is limited [1][2][67]. - In June, the central bank actively supported the cross - quarter period. The overnight funds were generally stable, while the volatility range of 7D funds increased slightly. The over - reserve level may have recovered to a seasonally high level. The second - quarter monetary policy meeting did not mention "reserve requirement ratio cuts or interest rate cuts" and emphasized "preventing capital idling" and "monitoring long - term yields", indicating limited room for significant capital easing in the future [3][6][46]. 3. Summary by Directory 3.1 6 - Month Review of Capital and Liquidity: Active Support at Quarter - End, Brief Tightening of Capital Prices 3.1.1 Capital Review: Slightly Enlarged Fluctuation Range of 7D at Quarter - End - In June 2025, the central bank actively supported the cross - quarter period. Overnight funds were generally stable, and the 7D funds showed a larger fluctuation range. The 7D weighted price fluctuated more widely compared to the previous month, and the spread between 7D and overnight funds widened at the quarter - end without inversion [6]. - In the early part of June, the upfront operation of 3M term repurchase agreements (1 trillion yuan) made the capital expectation turn looser. In the middle, the 6M repurchase agreement (4000 billion yuan) offset the tax - period disturbances. In the late part, despite the central bank's support, the capital price tightened due to slow institutional cross - quarter operations and high bond market leverage [7]. - The capital stratification pressure in June was not significant, with the spreads at seasonally low levels. The volatility of overnight funds remained low, and the 7D funds were also at a seasonally low level. The average daily trading volume of inter - bank pledged repurchase increased slightly, and the net lending of state - owned banks recovered, while that of money market funds declined [13][18][19]. 3.1.2 Liquidity Review: Reserve Requirement Ratio Cut Implemented, Bank Liquidity Level Increased - In terms of liquidity volume, the end - of - month over - reserve may have increased by 7061 billion yuan, and the over - reserve ratio was around 1.57%, at a seasonally high level. However, the narrow over - reserve level after deducting reverse repurchases was still relatively low at around 0.8% [31]. - In open - market operations, the central bank actively increased the reverse - repurchase investment in June, with a net investment of 5359 billion yuan. The MLF investment was 3000 billion yuan, and the net investment of the repurchase agreement was 2000 billion yuan. There was no treasury - deposit operation, and 1000 billion yuan of treasury deposits matured [34][40][42]. 3.2 6 - Month Monetary Policy Tracking: Lujiazui Forum Focused on Global Governance, Monetary Policy Meeting Concerned about Long - Term Interest Rates - In June 2025, the Lujiazui Forum focused on non - bank leverage, and the end - of - month meeting still concerned about capital idling and long - term interest rates. The upfront operation of the 3M repurchase agreement in June signaled the central bank's support for the capital market. The Lujiazui Forum discussed non - bank institution leverage and supervision [46][47]. - The second - quarter monetary policy meeting suggested increasing the intensity of monetary policy regulation, emphasizing long - term interest rate risks and preventing capital idling. The large - scale purchase of short - term treasury bonds by large banks and relevant media reports triggered market attention to the central bank's bond - buying operations [49][50]. 3.3 July Gap Prediction: Fiscal Disturbances May Concentrate in the Second Half of the Month 3.3.1 Rigid Gap: Slight Release of Reserves, Large - Scale Repurchase Agreement Maturity - In July, as it is the beginning of the quarter, the reserve release may supplement liquidity by around 1388 billion yuan. The MLF maturity is 3000 billion yuan, and the total maturity of the repurchase agreement is 1.2 trillion yuan (7000 billion yuan for 3M and 5000 billion yuan for 6M) [1][55]. 3.3.2 Exogenous Shocks: Limited Impact of Cash Withdrawal and Non - Financial Institution Deposits on Over - Reserves - In July, cash withdrawal may slightly consume over - reserves by 705 billion yuan, while non - financial institution deposits may slightly supplement over - reserves by 215 billion yuan [1][59]. 3.3.3 Fiscal Factors: Large - Scale Government Bond Issuance, Fiscal Expenditure Concentrated at Quarter - End - The government bonds' net financing scale in July 2025 may rise to around 1.6 trillion yuan, and the government deposits may freeze around 9000 billion yuan of liquidity, putting pressure on the capital market [60]. 3.3.4 Comprehensive Judgment: Pay Attention to the Impact of Large - Scale Payments - The overall capital gap in July is estimated to be around 2.4 trillion yuan. After a slight easing at the beginning of July, the funds will converge upwards, and the room for further easing is limited. The capital disturbance in the middle of the month, especially due to tax payments and government bond payments, deserves attention [1][2][67].

Bond Market Outlook Industry Investment Rating No industry investment rating is provided in the report. Core Viewpoints - The yield of the 10-year active treasury bond decreased by 0.5bp to 1.641% from June 30 to July 4, 2025. The smooth cross-quarter and loose funding were the main reasons for the decline. The view on the bond market remains unchanged, with the 10-year treasury bond yield expected to fluctuate between 1.6% - 1.7%, and it is advisable to actively deploy at the upper edge of the range [1][2]. - The central bank's change in the announcement time of treasury bond transactions in June was beyond market expectations. It is a signal of active management of the funding situation, and the central bank may resume buying treasury bonds at an appropriate time, but short-term impacts on funding rates and short-term bond yields need to be considered [2]. - US Treasury bonds still have strong allocation appeal. The long-term yield may fluctuate between 4 - 4.5%, and the short-term yield is more likely to decline. It is recommended to appropriately shorten the portfolio duration [20][22]. - The Fed is less likely to cut interest rates in July, and the second half of the year may be a critical period for monetary policy adjustment. The timing of interest rate cuts depends on the inflation trajectory [34]. Summary by Directory 1. Weekly Views - **Analysis of the 10-year Treasury Bond Yield Movement**: From June 30 to July 4, 2025, the yield of the 10-year active treasury bond decreased by 0.5bp to 1.641%. The yield was affected by factors such as monetary policy tone, PMI data, treasury bond issuance volume, stock market trends, and chip export restrictions [1]. - **Analysis of US Economic Data and Treasury Bond Yield Trends**: In June 2025, the US unemployment rate decreased, the hourly wage growth slowed down, the number of new non-farm payrolls increased, the manufacturing PMI exceeded expectations and rebounded, and the non-manufacturing PMI also improved. The yield of US Treasury bonds is still in the process of finding a trend, and the market has increased bets on the Fed's interest rate cut this year [3][6]. 2. Domestic and Overseas Data Aggregation - **Liquidity Tracking**: The net investment in the open market from June 30 to July 4, 2025, was -137.53 billion yuan. The money market interest rate generally declined, and the issuance volume and net financing of interest rate bonds changed [39][40]. - **Domestic and Overseas Macroeconomic Data Tracking**: The total transaction area of commercial housing increased, steel prices generally rose, LME non-ferrous metal futures official prices showed mixed trends, and prices of commodities such as coking coal, thermal coal, and crude oil also changed [56][60][73]. 3. Weekly Review of Local Government Bonds - **Primary Market Issuance Overview**: From June 30 to July 6, 2025, 23 local government bonds were issued in the primary market, with a total issuance amount of 72.139 billion yuan, a repayment amount of 81.288 billion yuan, and a net financing amount of -21.649 billion yuan. The main investment direction was comprehensive. Four provinces and cities issued local government bonds, and no province or city issued special refinancing special bonds for replacing hidden debts [74][75][78]. - **Secondary Market Overview**: The stock of local government bonds was 51.75 trillion yuan, the trading volume was 539.892 billion yuan, and the turnover rate was 1.04%. The top three provinces with active trading were Sichuan, Guangdong, and Jiangsu, and the top three active trading maturities were 10Y, 30Y, and 20Y. The maturity yields of local government bonds generally declined [88][93]. - **Local Government Bond Issuance Plan for the Month**: The issuance plans of local government bonds in various provinces and cities from July 7 to July 11, 2025, are provided [95]. 4. Weekly Review of the Credit Bond Market - **Primary Market Issuance Overview**: A total of 222 credit bonds were issued in the primary market this week, with a total issuance amount of 214.267 billion yuan, a total repayment amount of 136.128 billion yuan, and a net financing amount of 78.139 billion yuan. The net financing amount increased by 80.122 billion yuan compared with last week. Specifically, the net financing amount of urban investment bonds was -20.618 billion yuan, and that of industrial bonds was 98.757 billion yuan [96][97]. - **Issuance Interest Rates**: The issuance interest rates of various bond types changed, with the short-term financing bill increasing by 3.77bp, the medium-term note increasing by 4.70bp, the enterprise bond increasing by 0.33bp, and the corporate bond decreasing by 3.32bp [109]. - **Secondary Market Transaction Overview**: The total transaction amount of credit bonds this week was 660.266 billion yuan. The trading volume of short-term financing bills was 184.468 billion yuan, medium-term notes was 348.028 billion yuan, enterprise bonds was 117.73 billion yuan, corporate bonds was 490.06 billion yuan, and PPN was 669.91 billion yuan [111]. - **Maturity Yields**: The maturity yields of various bond types generally declined, including national development bonds, short-term financing bills, medium-term notes, enterprise bonds, and urban investment bonds [113][114][116]. - **Credit Spreads**: The credit spreads of short-term financing bills and medium-term notes showed a differentiated trend, while those of enterprise bonds and urban investment bonds generally narrowed [119][120][125]. - **Grade Spreads**: The grade spreads of short-term financing bills and medium-term notes showed mixed trends, while those of enterprise bonds and urban investment bonds generally narrowed [130][133][136]. - **Trading Activity**: The top five most actively traded bonds in each bond type are listed, and the industrial sector had the largest weekly trading volume of bonds, reaching 361.199 billion yuan [139]. - **Subject Rating Changes**: The subject ratings or outlooks of several issuers were upgraded, including Beixin Building Materials Group Co., Ltd., Xiamen Xiangyu Group Co., Ltd., etc. [140].

Macro Strategy - The macroeconomic environment shows a structural differentiation in domestic demand while external demand remains stable overall [1][10] - The ECI supply index is at 50.12%, slightly down from last week, while the demand index is at 49.94%, showing a slight recovery [10] - The U.S. GDP growth forecast for Q2 has been significantly revised upward due to the easing of trade tensions and the end of "import rush" behavior among wholesalers [12] Fixed Income Analysis - The report on Japanese residents' wealth allocation over 30 years highlights a shift from non-financial assets to diversified financial assets, influenced by macroeconomic cycles and demographic changes [2][15] - The low-interest-rate environment has pressured fixed-income returns, leading to a gradual increase in equity asset allocation among Japanese residents [15][16] - The introduction of policies like NISA and iDeCo has encouraged long-term investment strategies, moving away from traditional savings [15][16] Company-Specific Insights - Wuhan Tianyuan (301127) is projected to achieve net profits of 5.0/6.1/7.5 billion CNY from 2025 to 2027, reflecting growth rates of +50%/+22%/+23% [7] - China Water Affairs (00855.HK) shows stable core operational growth with a cash flow turning point, despite a forecasted decline in FY2025 net profit due to one-time impairment [7] - Juchip Technology (688049) is positioned as a leader in the smart audio SoC market, with strong growth expected in 2024, driven by increasing demand for wireless audio products [8][9] Convertible Bond Analysis - The Libor convertible bond is expected to list at a price between 128.57 and 142.73 CNY, with a subscription rate of 0.0028% [5][17] - The Ber 25 convertible bond is projected to list at a price between 118.12 and 131.40 CNY, with a subscription rate of 0.0122% [6][20]

Macro Strategy - The macroeconomic indicators show a structural differentiation in domestic demand while external demand remains stable overall. The focus of monetary policy is still on improving the efficiency of fund utilization [1][5] - The ECI supply index is at 50.12%, down 0.03 percentage points from last week, while the demand index is at 49.94%, up 0.01 percentage points. The investment index is at 49.97%, up 0.01 percentage points, and the consumption index is at 49.74%, down 0.02 percentage points [5] - The U.S. GDP growth forecast for Q2 has been significantly revised upward, maintaining expectations for the Fed's first rate cut in Q3 and two cuts throughout the year [1][7] Fixed Income - The report compares the holding structures and strategies of innovation bonds in China and overseas markets, highlighting that Chinese institutional investors prioritize liquidity in their selection strategies, while overseas investors adopt more aggressive strategies [2][10] - U.S. institutional investors favor duration strategies, while Japanese investors prioritize both duration and coupon strategies. European investors show a balanced approach across all strategies [10][12] Company Analysis - The report focuses on Derlin Holdings (01709.HK), which is positioned as a leading financial service platform for family offices in the Asia-Pacific region. The company has expanded its wealth management services and is expected to see significant growth in its family office business [4][14] - Derlin Holdings' projected net profits for the fiscal years 2026-2028 are estimated at HKD 1.38 billion, 1.53 billion, and 1.65 billion, with corresponding year-on-year growth rates of 0.81%, 11.18%, and 7.84% [4][15] - The company is leveraging AI technology to enhance its financial services, aiming to democratize access to wealth management for a broader range of investors [14][15]