Core Viewpoint - The Chinese government is intensifying its fiscal policy efforts as the year-end approaches, with a focus on advancing the planning and issuance of special bonds for 2026 to support key projects and economic recovery [1][2][3] Group 1: Fiscal Policy and Special Bonds - The Ministry of Finance plans to continue issuing new local government debt limits for 2026 to ensure funding for major projects and bolster economic recovery [1] - Various regions, such as Hubei and Jiangxi, have initiated the planning and review of special bond projects for 2026, focusing on areas like education, healthcare, and urban infrastructure [1][2] - As of November 23, the total issuance of new special bonds this year has reached approximately 42,315 billion yuan, achieving 96% of the annual target of 44,000 billion yuan [2] Group 2: Importance of Project Planning - Experts emphasize the necessity of early planning for special bond investment projects, particularly those aimed at urban renewal and improving living conditions, to ensure a stable economic outlook and high-quality development [2] - The proactive approach of local governments in preparing for 2026 special bond projects reflects a strong commitment to stabilizing investment and expanding domestic demand [2][3] - The successful issuance of special bonds this year has played a crucial role in stabilizing the macro economy and enhancing public welfare, laying a solid foundation for future fiscal policy continuity [3]

Core Viewpoint - The fiscal policy for 2026 will focus on promoting stable growth, improving people's livelihoods, and managing risks under the "15th Five-Year Plan," with a projected narrow fiscal deficit rate exceeding 4% and new local special bonds around 4.6 trillion yuan [1][5][43]. Group 1: Fiscal Policy Characteristics - The core feature of China's fiscal policy in 2025 is a shift towards a "people-oriented" expenditure structure, which is reflected in the resilience of consumption and the decline in infrastructure investment since July [1][5]. - On the revenue side, there is a weak recovery in the two accounts, with tight constraints still present. The income from individual income tax and securities transactions has improved, while land transfer income has seen a narrowing decline [5][11]. - On the expenditure side, there is a moderate expansion in total fiscal spending, with a structural shift towards social welfare. The central government's financial support is increasing, but the alignment of financial resources and responsibilities still needs optimization [1][11][15]. Group 2: Key Tasks for 2026 - The fiscal policy for 2026 will focus on three key tasks: promoting the synergy between social welfare and consumption incentives, addressing the slowdown in external demand, and resolving funding constraints for infrastructure investment [1][21][22]. - Policies such as trade-in programs and childbirth subsidies are expected to continue and be enhanced, with a focus on service consumption, projecting a retail sales growth rate of around 4.5% [2][25]. Group 3: Infrastructure Investment and Debt Management - For infrastructure investment and debt management, it is essential to clarify the scale and path of debt management funding, with an estimated need for around 3 trillion yuan in special bonds for debt management and clearing overdue accounts in 2026 [3][29]. - The pressure of interest payments after debt replacement is expected to be manageable due to a low-interest environment, which will help offset the visible interest payment pressure [3][37]. - The growth rate of infrastructure investment is projected to be around 3.5% in 2026, influenced by the constraints of debt management and the pursuit of effective investment [3][41]. Group 4: Fiscal Data Projections for 2026 - The growth rate of broad fiscal spending is expected to be around 4.6%, with a narrow fiscal deficit rate still needing to exceed 4%, and new local special bonds projected at approximately 4.6 trillion yuan [5][43][49]. - The general public budget revenue growth rate is estimated at about 1%, while government fund revenue is expected to decline by around 5% [43][46].

Report Industry Investment Rating - Not provided in the document Core Viewpoints - The economic growth in October continued the slowdown trend in the third quarter, with some economic indicators significantly affected by the external environment. The 500 billion new policy - based financial instruments have been fully deployed by the end of October, which may effectively boost investment growth in the fourth quarter, and it is expected that the annual economic growth target of 5% can be achieved without worry [104]. - The overall fundamental data in October was weak, with indicators such as exports, social financing, and social retail showing varying degrees of decline. The inflation level rebounded slightly, but its sustainability remains to be observed. It is expected that the economy will continue a weak recovery trend in the fourth quarter, supporting the bond market. The central bank will maintain a moderately loose policy tone, and the space for further monetary easing this year is limited. In the short term, interest rates may fluctuate within a narrow range [105]. Summary by Directory 1. Market Review - **Weekly Data**: The 30 - year TL2512 contract fell 0.51%, the 10 - year T2512 contract rose 0.01%, the 5 - year TF2512 contract fell 0.02%, and the 2 - year TS2512 contract rose 0.01%. The trading volume of the TS, TF, T, and TL main contracts increased, while the open interest decreased [13][30]. - **Treasury Bond Futures Market Review**: The 30 - year main contract fell 0.51%, the 10 - year main contract rose 0.01%, the 5 - year main contract fell 0.02%, and the 2 - year main contract rose 0.01% [16][22]. 2. News Review and Analysis - **Key News Review**: From January to October this year, the national fiscal revenue was 18.65 trillion yuan, a year - on - year increase of 0.8%. In October, the national fiscal revenue was 2.26 trillion yuan, a year - on - year increase of 3.2%. From January to October, the national fiscal expenditure was 22.58 trillion yuan, a year - on - year increase of 2%. In October, the bank settlement and sales surplus was 177 billion US dollars, and the cross - border capital inflow increased. The new LPR remained stable for the sixth consecutive month, and there is still a possibility of a decline in the future. The yield of Japan's newly issued 10 - year treasury bonds reached a new high since June 2008. The Fed's decision - making on interest rate cuts in October was highly controversial. The number of non - farm payrolls in the US in September increased significantly, but the unemployment rate rose to a new high since October 2021 [33][34][35]. 3. Chart Analysis - **Spread Changes** - **Treasury Yield Spread**: The spread between the 10 - year and 5 - year treasury yields narrowed, and the spread between the 10 - year and 1 - year treasury yields widened [41]. - **Main Contract Spread**: The spread between the 2 - year and 5 - year main contracts narrowed, and the spread between the 5 - year and 10 - year main contracts widened [50]. - **Treasury Bond Futures Near - Far Month Spread**: The inter - period spreads of the 10 - year, 30 - year, 5 - year, and 2 - year contracts all narrowed [54][61]. - **Treasury Bond Futures Main Position Changes**: The net short positions of the top 20 positions in the T treasury bond futures main contract increased slightly [67]. - **Interest Rate Changes** - **Shibor and Treasury Yields**: Overnight and 1 - week interest rates decreased, while 2 - week and 1 - month Shibor rates increased. The weighted average DR007 rate fell to around 1.44%. The yields of treasury bonds fluctuated within a narrow range, with the 10 - year and 30 - year yields rising by about 0.6bp and 0.9bp to 1.81% and 2.16% respectively [71]. - **China - US Treasury Yield Spread**: The spreads between the 10 - year and 30 - year China - US treasury yields both narrowed slightly [78]. - **Central Bank Open Market Operations**: The central bank conducted 1.676 trillion yuan in reverse repurchases, with 1.122 trillion yuan in reverse repurchases maturing and 120 billion yuan in treasury cash deposits maturing, resulting in a net injection of 434 billion yuan. The weighted average DR007 rate fell to around 1.44% [81]. - **Bond Issuance and Maturity**: This week, the total bond issuance was 1.203854 trillion yuan, and the total repayment was 1.263495 trillion yuan, with a net financing of - 59.641 billion yuan [87]. - **Market Sentiment** - The central parity rate of the RMB against the US dollar was 7.0875, with a cumulative depreciation of 50 basis points this week. The spread between the offshore and onshore RMB widened [90]. - The yield of the 10 - year US treasury bond decreased, and the VIX index increased significantly [96]. - The yield of the 10 - year treasury bond in China increased, and the A - share risk premium increased slightly [101]. 4. Market Outlook and Strategy - **Domestic**: In October, economic indicators such as social retail, industrial added value, and fixed - asset investment showed a slowdown. Social financing and credit decreased slightly year - on - year, and the support of government bonds for social financing continued to weaken. The export growth rate turned negative. The 500 billion new policy - based financial instruments have been fully deployed, which may boost investment in the fourth quarter, and the annual economic growth target of 5% is expected to be achieved [104]. - **Overseas**: The US government shutdown ended, and a large amount of economic data will be released. The non - farm payrolls in September increased significantly, but the unemployment rate rose. The Fed's decision - making on interest rate cuts was controversial, and the expectation of an interest rate cut in December decreased significantly [104].

Core Viewpoint - The investment outlook for Asian investors is cautious due to economic uncertainty and fluctuating market expectations regarding interest rate cuts by the Federal Reserve [1] Group 1: Economic Outlook - The Federal Reserve's policy direction is unclear, with increasing concerns about its impact on the market [1] - Discrepancies among Federal Open Market Committee members highlight the uncertainty in economic forecasts, with some advocating for a more aggressive 50 basis point cut while others oppose any cuts [1] - Fed Chair Powell warned that a rate cut in December is not guaranteed, contributing to market anxiety [1] Group 2: Market Performance - U.S. equities have rebounded nearly 40% from their "liberation day" lows but have recently become more volatile [1] - Concerns are growing over high valuations, skepticism regarding AI spending, and issues related to AI infrastructure debt financing [1] - Factors such as a recent government shutdown, weakening private sector employment data, declining consumer confidence, and unclear Fed policy are deepening market worries [1] Group 3: Corporate Earnings and Investment Strategy - Corporate earnings remain strong, and M&A activity is on the rise, supported by fiscal and monetary policy [2] - AI spending is identified as a key driver of economic growth, corporate earnings, and market performance, offsetting weaknesses in real estate, manufacturing, and the job market [2] - The company maintains a neutral stance on risk assets while closely monitoring economic sector disparities [2] Group 4: Stock Market Preferences - The company holds a neutral position on U.S. equities across market capitalizations, noting that while large caps may benefit from AI optimism, small caps present attractive valuations and could benefit from lower interest rates and increased M&A/IPO activity [2] - A higher allocation to Chinese stocks is maintained, with technology expected to be a key growth driver for China [2] - The company is underweight on U.S. long-term Treasuries due to potential upward pressure on yields from U.S. government financing needs [2]

Core Insights - The article emphasizes that the fiscal policy in the first year of the "14th Five-Year Plan" will focus on balancing active and sustainable requirements to promote stable growth, improve people's livelihoods, and mitigate risks [1][2] Fiscal Policy Overview - In 2026, the narrow fiscal deficit rate is expected to exceed 4%, with new local special bonds around 4.6 trillion and long-term special government bonds issued at approximately 1.5 trillion [1][3] - The core feature of China's fiscal policy in 2025 is a shift in expenditure structure towards "people's livelihood," which is linked to the resilience of consumption and the decline in infrastructure investment since the third quarter [2] Revenue and Expenditure Dynamics - On the revenue side, there is a weak recovery in the two accounts, with continued tight constraints [2] - On the expenditure side, broad fiscal spending is expected to moderately expand, with a structural shift towards social welfare and a decline in infrastructure investment contributing to a drag of at least 2 percentage points [2][3] Key Tasks for 2026 - The fiscal policy will focus on three key tasks: 1. Promoting the synergy between social welfare and consumption incentives 2. Addressing the growth continuity issues due to external demand slowdown 3. Resolving funding constraints for infrastructure investment [2] Infrastructure Investment and Debt Management - For infrastructure investment and debt management, three key questions need to be clarified: 1. The scale and path of debt management funding, with around 3 trillion in special bonds needed for debt management and clearing [3] 2. The potential increase in interest payment pressure post-debt replacement, which may rise but remain manageable due to a low interest rate environment [3] 3. The funding sources and performance of infrastructure investment, with an expected growth rate of around 3.5% in 2026 [3] Overall Fiscal Growth Projections - The overall growth rate of broad fiscal spending is projected to be around 4.6% in 2026, with the narrow fiscal deficit rate needing to exceed 4% [3]

Fiscal Policy Overview - The fiscal policy for 2026 aims to balance growth, social welfare, and risk prevention, with a narrow fiscal deficit rate expected to exceed 4%[1] - New local special bonds are projected to be around CNY 4.6 trillion, while ultra-long-term special government bonds may be issued at approximately CNY 1.5 trillion[1] Revenue and Expenditure Trends - In 2025, the fiscal structure shifted towards "people's livelihood," with a mild recovery in revenue but continued constraints[2] - Total broad fiscal expenditure is expected to grow by about 4.6% in 2026, with a focus on social welfare and consumption incentives[5] Infrastructure Investment Insights - Infrastructure investment growth is anticipated to be around 3.5% in 2026, influenced by debt resolution and effective investment strategies[3] - Approximately CNY 3 trillion in special bonds will be needed for debt resolution and clearing overdue payments in 2026[3] Consumer Spending and Social Welfare - Consumer spending is projected to grow at around 4.5%, supported by policies like trade-in programs and birth subsidies[4] - The expected increase in social welfare spending includes a CNY 1,080 billion rise in pensions and CNY 1,000 billion for birth subsidies, which will stimulate consumption[4] Risks and Challenges - Potential risks include slower-than-expected policy implementation, sluggish recovery in consumer spending, and rising local debt pressures[5] - The fiscal space may be constrained, impacting the effectiveness of the proposed measures[5]

Core Viewpoint - The article emphasizes the importance of proactive fiscal policies in sustaining economic growth and addressing social welfare needs, highlighting the need for both existing and new fiscal tools to enhance policy effectiveness [1][3][4]. Fiscal Revenue and Expenditure - In the first three quarters of this year, the national general public budget revenue reached 16.39 trillion yuan, a year-on-year increase of 0.5%, while general public budget expenditure was 20.81 trillion yuan, up 3.1% year-on-year [1]. - The growth in fiscal revenue is a positive indicator of overall economic improvement, with tax revenue showing consistent growth due to factors such as the performance of emerging industries and increased industrial profits [1][2]. Focus on Social Welfare - Fiscal spending has been directed towards key areas, particularly in social welfare, with significant increases in expenditures for social security, education, and health care, all reaching their highest growth rates in three years [2]. - Policies aimed at enhancing consumer spending, such as subsidies for child-rearing and free preschool education, are being progressively implemented to support the population [2]. Challenges and Future Outlook - Despite the positive trends, there is a noted slowdown in the growth rate of broad fiscal revenue and expenditure, necessitating continued efforts to ensure adequate spending [3]. - The reliance on fiscal revenue growth and government bond issuance for maintaining spending levels poses risks, especially if external uncertainties impact economic performance [3][4]. - The government plans to introduce new financial tools and policies to support local debt repayment and enhance effective investment, particularly in infrastructure, to sustain economic momentum [4].

Group 1 - The core viewpoint emphasizes the need for proactive fiscal policies to support economic stability and growth, leveraging both existing and new financial tools [1][3][4] - Fiscal revenue showed a slight increase of 0.5% year-on-year, amounting to 16.39 trillion yuan, while fiscal expenditure rose by 3.1% to 20.81 trillion yuan in the first three quarters [1] - The overall economic performance is improving, with GDP growth recorded at 5.2% year-on-year, driven by strong manufacturing investment, particularly in high-tech sectors [1][2] Group 2 - Fiscal spending remains robust, particularly in social welfare, education, and healthcare, with growth rates in these areas exceeding the average spending growth, marking the highest levels in three years [2] - The government is focusing on policies that enhance consumer spending and improve living standards, such as subsidies for child-rearing and free preschool education [2] - There is a noted slowdown in the growth rate of broad fiscal revenue and expenditure, necessitating continued efforts to ensure adequate funding for essential services [3] Group 3 - The government plans to introduce new financial tools and policies to address potential risks, including hidden debts and overdue payments to businesses, while ensuring the "three guarantees" for local governments [4] - The issuance of special bonds and long-term treasury bonds is expected to support infrastructure investment in the upcoming quarters [4] - Coordination between fiscal policy and other macroeconomic policies is crucial to sustain the positive economic momentum [4]

Core Viewpoint - The Japanese yen has depreciated significantly against the US dollar, falling below 156 yen per dollar, influenced by political statements and economic concerns [1] Economic Impact - The Tokyo stock market experienced continued pressure, with the Nikkei 225 index closing down by 0.34% and the Tokyo Stock Exchange Price Index down by 0.17% [1] - The yield on newly issued 10-year Japanese government bonds rose to 1.76%, the highest level since June 2008 [1] - In a recent 20-year bond auction, the highest successful bid yield reached 2.833%, surpassing the previous 2.684%, marking the highest level in approximately 26 years since July 1999 [1] Investor Sentiment - Concerns over Prime Minister Sanna Marin's proposed expansionary fiscal policies have led to fears of further deterioration in Japan's fiscal situation, resulting in a sell-off of Japanese government bonds and a continuous rise in long-term interest rates [1]

Core Insights - The report analyzes the current state and future trends of US dollar liquidity through a three-dimensional observation matrix, focusing on the federal funds market, the repo market, and the offshore dollar market, indicating that while liquidity remains ample, structural pressures are building [1][3]. Group 1: Federal Funds Market - The core observation metric has shifted from "price" to "scale," with total reserves in the banking system reflecting the abundance of base dollars. As of September 2025, total reserves are maintained at $3.2 trillion, accounting for 12.9% of total bank assets, indicating a relatively ample liquidity condition [1][11]. - Despite the Federal Reserve's balance sheet reduction since June 2022, the use of reverse repo tools has buffered the impact, preventing a significant withdrawal of reserves from the banking system [1][11]. - Continuous balance sheet reduction, rising Treasury General Account balances, and the nearing exhaustion of overnight reverse repo tools indicate that reserves are under pressure and may approach the liquidity warning line set by the Federal Reserve [1][3]. Group 2: Repo Market - The repo market serves as a crucial hub for dollar liquidity, with the Secured Overnight Financing Rate (SOFR) and the behavior of primary dealers being key observation points. Recently, the spread between SOFR and the overnight reverse repo rate has widened, indicating tightening liquidity conditions [2][18]. - The ratio of primary dealer reverse repos to reserve balances has been increasing, suggesting a tightening of funding supply, although it has not yet reached crisis levels seen in past financial stress periods [2][18]. - The Federal Reserve's standing repo facility has been heavily utilized at quarter-end, highlighting vulnerabilities in the repo market during structural gaps [2][21]. Group 3: Offshore Dollar Market - The offshore dollar market has shown characteristics of "bondification" and "derivatization," with traditional bank credit declining and bonds and foreign exchange derivatives becoming the main drivers of credit expansion [2][25]. - Monitoring offshore dollar liquidity is challenging through quantity indicators; thus, the currency swap basis has become an important observation metric. A widening basis indicates dollar scarcity, while a narrowing trend since 2025 suggests maintained liquidity even under external shocks [2][30]. - The transition from LIBOR to SOFR as the primary pricing benchmark reflects a shift in global dollar pricing power from offshore to onshore markets, diminishing the relevance of LIBOR-related indicators [2][29].