Group 1: Liquidity Trends - In April, the excess reserve ratio decreased by 0.1 percentage points to 0.9%, remaining below historical levels[6] - The central bank's additional reduction in claims on other deposit-taking institutions in March and April led to a total decrease of nearly 1.5 trillion yuan, contributing to the low excess reserves[6] - In May, the government deposit is expected to rise by approximately 130 billion yuan, which will reduce the consumption of excess reserves compared to previous years[24] Group 2: Monetary Policy and Interest Rates - Following the rate cuts in May, the DR007 rate converged towards the policy rate, with the spread narrowing to within 20 basis points, returning to levels seen in Q4 of the previous year[39] - The average net lending from banks in May increased to 3.67 trillion yuan, up from 3.28 trillion yuan in April, indicating improved liquidity conditions[39] - The central bank is expected to maintain a relatively loose liquidity environment in June, with the excess reserve ratio projected to rise to about 1.4%[24] Group 3: Fiscal Deficits and Government Bonds - The broad fiscal deficit in April reached 336.7 billion yuan, exceeding expectations by 190 billion yuan, driven by high government fund expenditures[13] - In May, the net financing scale of government bonds increased by approximately 6.74 trillion yuan, reflecting significant government bond issuance pressures compared to previous years[26] - The government’s fiscal spending is anticipated to continue to support economic growth, with expected expenditures in May rising by 5.4% year-on-year to about 1.99 trillion yuan[31]

Report Industry Investment Rating - No information provided regarding the industry investment rating. Core Viewpoints - Despite the 0.5% reserve requirement ratio cut on Thursday, the funding situation tightened marginally due to factors such as MLF maturity and increased government bond payments. The fluctuations in the funding situation on these two days are considered temporary shocks [2][3]. - Although the excess reserve ratio remains low, the continuous increase in the central bank's net lending to banks from March to April has led to a marginal loosening of funds, which may indicate that the central bank is regulating the funding situation through implicit support for banks. The central bank may not intend to let the funding rate decline significantly in the short - term, and the target central DR007 rate may still be above 1.5% [3]. - It is expected that the central funding rate next week will not rise significantly, and the central DR007 rate is likely to remain between 1.5% - 1.6% [4]. Summary by Directory I. Money Market 1.1 This Week's Funding Review - The central bank's reverse repurchase had a net withdrawal of 350.1 billion yuan this week, with 125 billion yuan of MLF maturing on Thursday and a 0.5% reserve requirement ratio cut implemented on the same day. The funding rate declined significantly in the first half of the week, with R001 dropping to the range of 1.4% - 1.45%. However, after the reserve requirement ratio cut on Thursday, the funding tightened marginally. On Friday, the central bank made a small - scale net injection, and the DR007 rose to 1.64% [2][7]. - The volume of pledged repurchase first increased and then decreased, with the average daily trading volume rising by 0.33 trillion yuan to 7.14 trillion yuan. The overall scale of pledged repurchase also showed the same trend. The net lending of large - scale banks, joint - stock banks, and city commercial banks decreased on Friday. The new - caliber funding gap index decreased to - 486.5 billion on Wednesday and rebounded to - 102.8 billion on Friday, still lower than last Friday's - 15 [3][16]. - The funding rate turned loose as expected this week, with the overnight rate dropping to around 1.4%. However, after the reserve requirement ratio cut on Thursday, the funding tightened marginally. The main reason for the funding fluctuations may be the net payment of 685.8 billion yuan for government bonds and the net withdrawal of 475.1 billion yuan from reverse repurchase and MLF this week, which are roughly equivalent to the scale of the reserve requirement ratio cut [3][18]. - The excess reserve ratio in April decreased by 0.1 percentage points to 0.9% compared to March, lower than expected. The main reason is the significant decrease in the central bank's claims on other depository corporations. Other factors include the higher - than - expected increase in fiscal deposits, the slower - than - expected cash return, the increase in the central bank's claims on other financial corporations, and the decrease in the central bank's claims on the government [20]. 1.2 Next Week's Funding Outlook - The scale of government bond net payments will decrease from 685.8 billion yuan this week to 437.9 billion yuan next week. The scale of reverse repurchase maturity is 486 billion yuan, and May 22nd is the tax payment deadline. Considering the central bank's attitude of maintaining stability, the probability of a significant increase in the central funding rate next week is limited, and the central DR007 rate is likely to remain between 1.5% - 1.6% [4][39]. - The scale of 10Y coupon - bearing treasury bonds and 50Y special treasury bonds issued in May is higher than expected. The assumption of net treasury bond financing in May is raised to 940 billion yuan, and the assumption of net local government bond financing in May remains at 670 billion yuan. It is estimated that the scale of government bond issuance in May is about 2.42 trillion yuan, and the net financing is about 1.61 trillion yuan [3][4]. II. Inter - bank Certificates of Deposit - The 1 - year Shibor rate decreased by 4.0BP to 1.67%. The 1 - year secondary rate of AAA - rated inter - bank certificates of deposit increased by 1.5BP to 1.675% [40]. - The issuance scale of inter - bank certificates of deposit decreased while the maturity scale increased, resulting in a net repayment of 799 million yuan. The net financing scales of state - owned banks, joint - stock banks, city commercial banks, and rural commercial banks are 90 million yuan, - 848 million yuan, - 63 million yuan, and - 7 million yuan respectively. The issuance proportion of 1 - year certificates of deposit decreased by 14 percentage points to 23%, and the issuance proportion of 3 - month certificates of deposit is the highest at 57%. The maturity scale of certificates of deposit next week is about 74.6 billion yuan, an increase of 15.22 billion yuan compared to this week [4][42]. - The issuance success rates of certificates of deposit of various banks decreased slightly compared to last week but remained close to the average level in recent years. The issuance spread of 1 - year certificates of deposit between city commercial banks and joint - stock banks widened. The demand for certificates of deposit from money market funds and funds weakened, while the willingness of wealth management products and other products to increase their holdings of certificates of deposit increased. The supply - demand relative strength index of certificates of deposit continued to rise, increasing by 3.7 percentage points to 47.7% compared to last week [4][55]. III. Bill Market - The bill rate first decreased and then increased this week. The 3 - month and 6 - month rates of state - owned and joint - stock banks increased by 5BP to 1.14% and 1.13% respectively [62]. IV. Bond Trading Sentiment Tracking - The bond market adjusted this week, and the credit spread narrowed. The willingness of large - scale banks to reduce their bond holdings decreased, mainly for perpetual bonds and policy - bank bonds. The willingness of trading - type institutions to slightly reduce their bond holdings increased, while the willingness of allocation - type institutions such as rural commercial banks, insurance companies, and wealth management products to increase their bond holdings generally increased [65].

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - Before the implementation of reserve requirement ratio cuts and interest rate cuts, the funding rate is expected to continue to approach the policy rate. The probability of reserve requirement ratio cuts and interest rate cuts in the second quarter is relatively high, but the specific timing needs to be observed based on the overall rhythm of the package of policies. The reserve requirement ratio cut in Q2 has a high probability of implementation, and the central bank is likely to cut interest rates in Q2. The funding rate in May still has room to decline further [2][3]. - Although the market's reaction to the statement of "timely reserve requirement ratio cuts and interest rate cuts" has significantly dulled, considering the current policy focus and the impact of trade frictions on the fundamentals, reserve requirement ratio cuts and interest rate cuts are still expected to be implemented within the second quarter [3]. - The increase in MLF volume in April is likely not to replace reserve requirement ratio cuts but rather to extend the maturity of medium - term liquidity injection. The necessity of reserve requirement ratio cuts has increased as the long - term liquidity released by the September 2024 reserve requirement ratio cut has been basically exhausted [3]. 3. Summary According to the Directory 3.1 March: Counter - seasonal Decline in Excess Reserve Ratio, but Increased Bank Lending Kept the Funding Market Stable - In March, the excess reserve ratio decreased by 0.2 percentage points month - on - month to 1.0%. The main reason was the significant decline in the central bank's claims on other depository corporations, which was much higher than the net withdrawal through OMO and the decline in other depository corporations' liabilities to the central bank [6]. - Although the excess reserve ratio decreased in March, the central bank may have supported banks implicitly to stabilize the funding market, as the bank's net lending increased significantly, and the funding rate center decreased compared to February. However, the funding gap index was relatively high, and the central bank's desired funding rate was still higher than the policy rate [8]. - In March, the increase in required reserves due to high credit growth and a significant decline in non - bank deposits, the decrease in government deposits, cash inflows, and the decline in foreign exchange holdings were all within the expected range. The use progress of special bonds was relatively fast, but the expenditure rhythm of replacement bonds was slightly lower than expected [10]. 3.2 April: Reserve Requirement Ratio Cuts and Interest Rate Cuts Did Not Materialize, but Increased Bank Lending Continued to Push Down the Funding Rate Center - In April, the general fiscal deficit was expected to be at a neutral level in recent years. The government bond supply pressure was higher than in previous years, but the expenditure of replacement bonds might lead to additional government deposit injections. The government deposits were expected to increase slightly by about 10 billion yuan, and the consumption of excess reserves was significantly weaker than in previous years [12]. - Credit issuance in April was expected to be weak, and the required reserve scale might decrease by 30 billion yuan, which would supplement liquidity. The currency issuance was expected to decrease by about 100 billion yuan, and foreign exchange holdings might continue to withdraw about 50 billion yuan [12]. - The central bank's net injection of pledged reverse repurchase in April was 320.8 billion yuan, MLF was over - renewed by 500 billion yuan, but the net withdrawal of outright reverse repurchase was 500 billion yuan. The central bank's claims on other depository corporations were expected to increase by about 320 billion yuan month - on - month. The excess reserve ratio in April was expected to increase by 0.1 percentage points to 1.1%, but it was still at a relatively low level in non - quarter - end months [12][13]. - The reserve requirement ratio cuts and interest rate cuts did not materialize in April. The central bank might wait due to the need to coordinate with a package of policies. However, due to increased fundamental uncertainties, the central bank might support banks implicitly, pushing up bank net lending and making the funding rate approach the policy rate. The gap between R and DR reached the lowest level since May 2024 [31][32]. - The cross - month progress of various institutions in April was generally fast, at a relatively high level in the past five years, which kept the month - end liquidity relatively stable [34]. 3.3 May: Increased Government Bond Supply Pressure, and the Excess Reserve Ratio May Decline Again - In May, although the general fiscal deficit was expected to be at a relatively high level in recent years, and the expenditure of replacement bonds might lead to additional government deposit injections, the government bond supply pressure was significantly higher than in previous years. The government deposits were expected to increase by about 360 billion yuan [39]. - The required reserve in May was expected to increase seasonally, withdrawing about 30 billion yuan. The currency issuance was expected to decrease by about 100 billion yuan, supplementing the funding market. Foreign exchange holdings might continue to withdraw about 50 billion yuan [39]. - In the open market, the balance of pledged reverse repurchase at the end of May was assumed to drop to about 1 trillion yuan, with a net withdrawal of about 620 billion yuan. However, considering the significant increase in government bond net supply pressure, the central bank might use MLF and outright reverse repurchase to release medium - and long - term liquidity. The central bank's claims on other depository corporations were expected to decrease by about 140 billion yuan month - on - month. The excess reserve ratio in May was expected to be about 1.0%, a 0.1 - percentage - point decrease from April, at a historically low level [39]. - The Politburo meeting in April mentioned "timely reserve requirement ratio cuts and interest rate cuts" again. Although the market's reaction was dull, considering the current policy focus and the impact of trade frictions, reserve requirement ratio cuts and interest rate cuts were still expected to be implemented within the second quarter, but the specific timing needed to be observed [52]. - The increase in MLF volume in April was likely not to replace reserve requirement ratio cuts but to extend the maturity of medium - term liquidity injection. The necessity of reserve requirement ratio cuts has increased as the long - term liquidity released by the September 2024 reserve requirement ratio cut has been basically exhausted [53][56]. - Due to the increased unexpected changes in excess reserves and bank lending in recent years, the actual impact of reserve requirement ratio cuts has decreased. The central bank's attitude towards the funding market and policy rates may be more important. The central bank is likely to cut interest rates in Q2, but DR007 needs to return close to the policy rate first. Although the DR007 rate center may not directly drop to around 1.5% in May, the funding rate still has room to decline [59].

Liquidity Overview - In the first week of April, liquidity has shown a self-driven easing trend, with DR007 and R007 weekly averages down by 7bp and 18bp respectively, and overnight rates gradually falling to 1.6%[1] - The banking system's net lending remained high, with daily net lending exceeding 30,000 billion CNY from March 31 to April 3, peaking at 34,700 billion CNY on the cross-quarter day[1][12] Market Expectations - Looking ahead to the week of April 7-11, liquidity is expected to remain loose due to the absence of tax payments and a significant drop in government bond net payments to -490.6 billion CNY, the lowest level since 2023[2][16] - The tax filing deadline has been postponed to April 18, which will limit the impact of tax-related liquidity fluctuations during this week[2][16] Open Market Operations - From April 7-11, the central bank's reverse repos will mature at 763.4 billion CNY, with a total of 9,134 billion CNY in open market operations due[3][38] - The central bank net withdrew 501.9 billion CNY from March 31 to April 3, with reverse repos totaling 684.9 billion CNY and maturing repos at 1,186.8 billion CNY[3][37] Bill Market Trends - As of April 3, the 1M discount bill rate dropped significantly from 2.00% to 1.42%, while the 3M rate fell by 65bp to 1.05%[4][41] - Major banks net purchased 118.7 billion CNY in bills, with a cumulative net purchase of 127 billion CNY from April 1-3[4][41] Government Bond Activity - The net payment for government bonds fell sharply to -490.6 billion CNY for the week of April 7-11, down from 546.1 billion CNY the previous week[5][46] - The planned issuance for government bonds during this period is set at 201.9 billion CNY, all of which are local bonds[5][46] Interbank Certificate of Deposit - The pressure from maturing interbank certificates of deposit increased, with 5,497 billion CNY maturing from April 7-11, a significant rise from 1,011 billion CNY the previous week[6][51] - The weighted average issuance rate for interbank certificates of deposit decreased to 1.89%, down 4bp from the previous week[6][51]

Group 1: Liquidity and Market Conditions - The liquidity pressure has eased slightly this week, but it cannot be termed as relaxed, with overnight funding rates decreasing and 7-day funding rates slightly increasing[3] - The average net supply in the banking system from February 24 to February 28 was 1.52 trillion yuan, an increase of 335.7 billion yuan compared to the previous week[4] - The central bank's recent open market operations indicate a supportive stance, with a net injection of 433.1 billion yuan during the week[26] Group 2: Money Market Trends - As of February 28, the average rates for DR001 and DR007 decreased by 9.5 basis points and 8.9 basis points to 1.86% and 2.13%, respectively[4] - The average daily transaction volume for interbank pledged repos was 49,981 billion yuan, an increase of 38.2 billion yuan compared to the previous week[4] - The issuance of interbank certificates of deposit (CDs) from February 24 to February 28 totaled 715.2 billion yuan, with a net financing amount of -382.8 billion yuan, indicating increased issuance but reduced net financing[5] Group 3: Government Debt and Fiscal Policy - The net payment for government bonds next week is projected to be 248.6 billion yuan, a decrease compared to the previous week, which may have a limited impact on liquidity[32] - The upcoming government bond issuance includes 2.63 billion yuan in national bonds and 2.175 billion yuan in local bonds, with a total issuance of 4.805 billion yuan[32] Group 4: Risk Factors - Key risk factors include policy uncertainty, unexpected changes in the economic fundamentals, and geopolitical risks from overseas[7]