Group 1 - The recent rise in equity market sentiment has led to a narrow fluctuation in the bond market, with 10-year and 30-year government bonds struggling to break previous lows, while credit bonds and local government bonds are performing relatively strongly, indicating that compressing yield spreads is becoming a less obstructive direction in an unclear benchmark interest rate environment [1] - As of July 18, 2025, the active bond index for 5-10 year government bonds has decreased by 0.02%, while the government bond ETF for the same duration has seen a recent price of 117.55 yuan, with a nearly 1-year cumulative increase of 5.06% [3] - The government bond ETF for 5-10 years has a recent trading volume of 16.18 billion yuan, with an active market turnover rate of 108.29%, and an average daily trading volume of 7.40 billion yuan over the past month [3] Group 2 - The government bond ETF for 5-10 years has a recent scale of 1.494 billion yuan, with net inflows and outflows remaining balanced, accumulating a total of 61.71 million yuan in inflows over the past 21 trading days [3] - The government bond ETF for 5-10 years has achieved a net value increase of 21.14% over the past 5 years, with a maximum monthly return of 2.58% and a historical profitability rate of 100% over 3 years [3] - The Sharpe ratio for the government bond ETF for 5-10 years over the past 2 years is 1.26, with a maximum drawdown of 2.15% this year, and a management fee rate of 0.15% and a custody fee rate of 0.05% [4]

Core Viewpoint - The Japanese yen is experiencing significant depreciation against the US dollar and other major currencies, driven by a combination of factors including delayed interest rate hikes by the Bank of Japan, trade pressures from the US, and concerns over Japan's fiscal outlook ahead of the upcoming Senate elections [1][2][3]. Group 1: Currency Performance - The yen has depreciated nearly 3% against the US dollar in July, breaking through multiple key levels from 144 to 149 [1]. - The yen has also reached near historical lows against the euro and Swiss franc, and has depreciated over 3% against the Chinese yuan since July 4 [1]. - The trading volume of bullish options for the dollar against the yen has surpassed that of bearish options by more than two times [2]. Group 2: Economic Factors - The depreciation of the yen is attributed to the Bank of Japan's delayed interest rate normalization, which has weakened market expectations for yen appreciation [2]. - The interest rate differential between Japan and the US remains historically high, with the US Federal Reserve's policy rate exceeding 4%, further pressuring the yen [2]. - Ongoing trade negotiations between the US and Japan have not yielded substantial progress, adding to uncertainties regarding Japan's economic outlook [2][3]. Group 3: Market Reactions - Ahead of the July 20 Senate elections, there are expectations that the election results may lead to additional fiscal stimulus, which has contributed to the selling of the yen [3]. - Japanese government bonds have seen a sell-off, with the 40-year bond yield rising by 17 basis points, indicating market concerns about fiscal stability [3]. - The combination of external and internal uncertainties is suppressing market bets on a rebound of the yen [3]. Group 4: Future Outlook - The yen is expected to remain under pressure in the short term, heavily influenced by the monetary policies of both the US and Japan [4]. - If the Federal Reserve resumes rate cuts, the narrowing interest rate differential could provide critical support for the yen [4]. - Current market conditions suggest that while the dollar may experience weakness, the yen remains significantly undervalued, with potential for a rebound if trade negotiations progress positively [4][5].

Report Title - ABS Supply and Demand are Booming — ABS Monthly Report (June 2025) [1] Core Viewpoint - In June 2025, the ABS market showed a prosperous situation with growth in both supply and demand. The primary issuance scale increased, the secondary trading volume and turnover rate significantly improved, the investor structure had certain changes, and the yields and spreads also presented corresponding trends [2][3][4][5] Specific Summaries by Section Primary Issuance - **Issuance Scale**: In June 2025, the ABS issuance scale increased by 36% month-on-month to 205.546 billion yuan. Among them, the issuance scales of credit ABS, enterprise ABS, and ABN were 24.719 billion yuan, 128.621 billion yuan, and 52.206 billion yuan respectively, with month-on-month growth rates of 3%, 55%, and 18% [2][8] - **Issuance Term and Interest Rate**: Newly issued ABS in June mostly had a term of 1 - 2 years, and the weighted average coupon rate continued to decline. The weighted average coupon rate was 1.93%, a decrease of 7.82bp compared to May. By ABS type, the weighted term of newly issued credit ABS was 2.80 years with a weighted interest rate of 1.63%; for enterprise ABS, the weighted term was 3.38 years and the weighted interest rate was 2.05%; for ABN, the weighted term was 2.56 years and the weighted interest rate was 1.93% [2][10] Secondary Trading - In June 2025, the ABS trading volume and turnover rate significantly increased. The monthly trading volume was 163.716 billion yuan, a 38.01% increase from May. The monthly turnover rate was 5.0%, a 1.3 percentage point increase from May. Among them, ABN was the most actively traded ABS product type, with a monthly turnover rate of 7.0% in June, a 1.1 percentage point increase from the previous month [3][16] Investor Structure - **Credit ABS**: Commercial banks and non - legal person products were the main holders, accounting for 69% and 15% respectively. The holding proportions of commercial banks and non - legal person products decreased by 0.55 and 0.04 percentage points respectively compared to the previous month, while the holding proportion of securities companies increased by 0.37 percentage points [4][19] - **ABN**: Non - legal person products and commercial banks held the most, accounting for 62% and 28% respectively, remaining the same as the previous month [4][19] - **Enterprise ABS**: For Shanghai Stock Exchange enterprise ABS, trust institutions and bank self - operations were the main investors, with holding proportions of 31% and 26% respectively as of June, with the trust institution's proportion decreasing by 0.2 percentage points and the bank self - operation's increasing by 0.1 percentage point compared to the previous month. For Shenzhen Stock Exchange enterprise ABS, trust institutions and general institutions were the main investors, with holding proportions of 32% and 27% respectively as of June, with the trust institution's proportion decreasing by 0.3 percentage points and the general institution's remaining unchanged [4][24] Yields and Spreads - In June, the yields to maturity of ABS at various terms continued to decline. The changes in the yields to maturity of 1 - year, 3 - year, 5 - year, and 10 - year AAA - rated asset - backed securities compared to May 30, 2025, were - 1.6bp, - 3.1bp, - 6.7bp, and - 7.0bp respectively. The spreads between ABS and medium - and short - term notes mostly decreased. The spreads between 1 - year, 3 - year, 5 - year, and 10 - year AAA - rated asset - backed securities and medium - and short - term notes of the same term and rating changed to 5.7bp, - 12.1bp, - 2.5bp, and - 3.5bp respectively, with changes of 0.3bp, - 2.0bp, - 2.5bp, and - 2.1bp respectively [5][26]

Group 1: Market Trends - In June, bond market yields declined amid a shift from negative to positive sentiment, with significant downward movement in yields for government bonds with maturities of 3 years and below, indicating renewed upward potential for the bond market[1] - The bond market is expected to experience seasonal liquidity easing in July, with historical data showing that July often represents a low point for funding rates throughout the year[2] - The net issuance of government bonds in July is projected to be between 1.46 trillion and 1.60 trillion yuan, maintaining a relatively high level and potentially impacting market liquidity[2] Group 2: Institutional Behavior - Institutional investors, particularly in the insurance sector, may provide significant support to the bond market in July, with expectations of a potential reduction in the preset interest rate below 2.25%, which could lead to increased premium income[3] - Bank wealth management products are anticipated to see an increase in scale, potentially reaching a growth of over 1 trillion yuan in July, driven by favorable market conditions[3] - Despite rising funding costs at the end of June, the banking system's funding supply increased, indicating a potential for additional liquidity to flow into the bond market[3] Group 3: Economic Fundamentals - The economic growth outlook remains mixed, with GDP growth expected to exceed 5.0% in Q2, but consumer demand remains weak, as evidenced by a record low of 572.3 billion yuan in new household loans from January to May 2025[4] - Export activity showed signs of marginal recovery, with container throughput reaching 6.72 million units in June, reflecting a year-on-year increase of approximately 5.3%[4] - Retail sales growth is relatively strong, with automobile sales increasing by 24% year-on-year in June, although overall consumer demand is still lagging[4] Group 4: Risks and Challenges - Expectations for interest rate cuts have weakened, with the central bank's recent statements dampening market anticipation for further monetary easing[6] - The bond market may face volatility due to fluctuations in the stock market and uncertainties surrounding tariff policies, particularly with the upcoming deadline for tariff exemptions on July 9[6] - The potential for a significant increase in government bond supply in July could create pressure on the bond market, although central bank interventions may mitigate this risk[6]

Core Insights - The strengthening of the euro is primarily driven by positive confidence shocks in Europe rather than interest rate differentials [1] Group 1 - The European Central Bank Executive Board member Schnabel emphasized that the euro's appreciation is linked to the overall economic sentiment in Europe [1] - The statement suggests that market perceptions and confidence in the European economy play a crucial role in currency valuation [1]

Group 1: Open Market Operations - The central bank announced a 7-day reverse repurchase operation on June 9, with a fixed rate and quantity tendering of 173.8 billion yuan at an interest rate of 1.40%, with the same amount being the bid and awarded [1] - On the same day, there were no reverse repos maturing, resulting in a net injection of 173.8 billion yuan [1] Group 2: Funding Conditions - Following a trillion-yuan reverse repurchase operation that boosted confidence, the central bank continued to inject liquidity, leading to a more relaxed interbank funding environment, with overnight pledged repo rates falling over 3 basis points, dropping below 1.4% [3] - The latest overnight financing rate in the U.S. stands at 4.29% [4] Group 3: Interbank Certificates of Deposit - The latest transaction for one-year interbank certificates of deposit among major banks is around 1.67%, showing a slight decline from the previous day [6] Group 4: Bond Yield Rates - The yields for various government bonds are as follows: 1Y at 1.4100%, 2Y at 1.4250%, 3Y at 1.4350%, 5Y at 1.4976%, 7Y at 1.5865%, and 10Y at 1.6550% [8] - The yields for policy bank bonds and local government bonds also show slight variations, with some yields decreasing [8] Group 5: Recent Economic Indicators - In May, China's CPI decreased by 0.1% year-on-year, slightly better than the expected decline of 0.2%, while PPI fell by 3.3%, worse than the expected drop of 3.2% [12] Group 6: International Economic Dialogue - During a visit to the UK, China's Vice Premier He Lifeng discussed economic and financial cooperation with UK Chancellor of the Exchequer, emphasizing the need for mutual efforts to implement agreements and deepen economic relations [14]

Group 1: Global Economic Outlook - UBS expects global economic growth to gradually slow down in the second half of 2025, with healthy balance sheets and low default rates supporting spread stability [1] - The anticipated spread for EU investment-grade/high-yield bonds by December 2025 is projected at 100/325 basis points, despite potential market volatility from tariff news [1][2] - UBS's proprietary economic risk indicator has improved, challenging initial recession scenarios, although growth momentum is expected to fade later in the year [2] Group 2: ECB and Monetary Policy - UBS forecasts a 25 basis point rate cut by the ECB in June to 2.0%, aligning with market expectations, with another potential cut in July to 1.75% [3] - The ECB is expected to prioritize growth support while navigating inflation uncertainties, particularly in light of potential retaliatory tariffs from the EU [3] Group 3: Credit Market Dynamics - The Purchasing Managers' Index (PMI) showed a slowdown in May, but manufacturing activity remains positive, with private sector credit growth recovering [4] - Low default rates (approximately 1.5%) and strong fundamentals are supporting the resilience of credit spreads, despite ongoing trade uncertainties [4] Group 4: Sector-Specific Insights - Investment-grade financial bonds are seen as an ideal choice compared to corporate bonds, with energy and basic industries being the most sensitive to tariff news [1][7] - The capital goods and utilities sectors are viewed as defensive, while the technology sector is experiencing increased volatility due to specific risks [7] Group 5: Trade News Impact - Following the announcement of tariffs, credit spreads initially widened but did so in an orderly manner without panic selling [6] - UBS anticipates increased volatility around tariff news in the summer, particularly after the 90-day pause period ends [6] Group 6: Investment Opportunities - In the context of rising market volatility due to tariff news, opportunities in sensitive sectors are increasingly driven by individual stock performance rather than macro factors [8] - Companies with strong balance sheets and low breakeven points in the energy sector are better positioned, while those with high leverage face greater risks [8] Group 7: Credit Market Trends - The orderly widening of spreads around the "Liberation Day" reflects investor preparedness, with a significant amount of cash buffer available to manage tariff announcements [9] - UBS predicts a rotation of funds from U.S. to EU markets, with credit valuations remaining well-supported [9] Group 8: Financial Sector Performance - The financial sector has outperformed, supported by strong earnings from core European banks, despite some weakness in interest income and non-performing loans [10][11] - UBS maintains a constructive but cautious outlook on the financial sector, anticipating moderate issuance in the investment-grade primary market [11] Group 9: Technical Market Conditions - Investment-grade corporate bond issuance reached a historical high of 56% in May, driven by positive tariff news and strong investor demand [13] - UBS expects a healthy supply dynamic for financial bonds, particularly in AT1 and T2 bonds, supporting the market's technical backdrop [13] Group 10: Private Credit Market Outlook - UBS notes unique supportive factors in the European private credit market, including stronger EBITDA growth compared to the U.S. and improving interest coverage ratios [14] - The European private credit market is expected to remain resilient, with ample dry powder available to support liquidity and mitigate hard defaults [14]

Core Insights - The secured overnight financing rate (SOFR) reached 4.26% on May 21, marking the lowest level since December 2022, down from 4.27% the previous day [1] - The narrowing spread between SOFR and the Federal Reserve's overnight reverse repurchase agreement (RRP) rate to just 1 basis point indicates ample front-end funding due to U.S. Treasury payments and government-supported corporate cash inflows [1] - The repo market is experiencing a notable softening, particularly at this time of the month, as highlighted by Oxford Economics analyst John Canavan [1] Summary by Category SOFR and RRP Rates - SOFR reported at 4.26%, down from 4.27% [1] - The spread between SOFR and RRP rate narrowed to 1 basis point, the tightest since November 20, 2024 [1] Repo Market Dynamics - Overnight GC repo rates initially reported at 4.30%, 4.29%, and 4.28%, with bid-ask spreads of 4.28%-4.27% [1] - The effective federal funds rate remained unchanged at 4.33% [1]

Group 1 - The German 10-year government bond yield increased by 6.1 basis points, reaching a daily high of 2.536%, showing an N-shaped upward trend throughout the day [1] - The 2-year German bond yield rose by 6.0 basis points, reported at 1.773%, and peaked at 1.776% at 23:50 [1] - The 30-year German bond yield increased by 6.6 basis points, reported at 2.989% [1] Group 2 - The 2/10 year German bond yield spread decreased by 0.130 basis points, reported at +75.778 basis points [1] - The bond yields experienced a slight uptick of 1 basis point following the Bank of England's announcement of an interest rate cut at 19:02 Beijing time [1] - The US stock market opened at 21:30, initiating a second wave of sustained upward movement [1]

Core Viewpoint - The Chinese credit market is experiencing a significant shift as credit risks and spreads have reached historical lows, driven by a combination of value imbalance, policy changes, and debt cycle dynamics [1][2]. Group 1: Value Imbalance - The ratio of credit spreads to LPR spreads fell below 50% in the second half of 2024, leading to a disappearance of capital gain expectations [1]. - Institutional investors, such as banks and insurance companies, are shifting towards long-term interest rate bonds due to the imbalance in value, resulting in a sharp adjustment in the credit bond market [1]. - This institutional behavior has intensified the differentiation within the credit market, highlighting the severe inadequacy of overall credit spread value [1]. Group 2: Policy Dynamics - Since the initiation of the debt reduction policy in 2015, credit spreads have been on a long-term decline, but the policy focus has shifted towards urban investment transformation rather than debt reduction itself as of September 2024 [2]. - The next three years will see the completion of implicit debt replacement, leading to a reduction in policy support and a transition into a policy bottom phase for the credit market [2]. - The decrease in debt reduction funds and the advancement of urban investment transformation are gradually diminishing the factors that mitigate credit risk, necessitating attention to the survival pressures of tail-end entities [2]. Group 3: Debt Cycle Context - In the context of a global debt crisis, China has adjusted earlier due to pressures from real estate and local government debt, with credit risk pricing at historical lows [2]. - However, the pressures from external demand contraction and urban investment transformation are increasing actual tail-end risks [2]. - As the largest industrial nation globally, China’s reliance on external demand is facing challenges, while the push for urban investment transformation exacerbates credit risks for tail-end entities [2].