Report Industry Investment Rating The provided documents do not mention the industry investment rating. Core Viewpoints - Liquidity tightening and emotional shocks have led to a comprehensive increase in credit spreads. This week, the adjustment trend of interest - rate bonds continued, and credit bond yields also significantly increased, with overall performance weaker than interest - rate bonds. Credit spreads across all tenors and ratings have risen [2][5]. - The spreads of urban investment bonds at all levels have increased by 3BP on the whole, with most spreads rising [2][9]. - Most industrial bond spreads have increased, while the spreads of mixed - ownership real - estate bonds have continued to decline [2][17]. - The yields of secondary and perpetual bonds have all increased, and the spreads of 3 - 5Y bonds have significantly widened again [2][23]. - The excess spreads of perpetual bonds have significantly increased [2][25]. Summary by Directory I. Liquidity tightening and emotional shocks lead to a comprehensive increase in credit spreads - This week, the yields of 1Y, 3Y, 5Y, 7Y, and 10Y Guokai bonds increased by 4BP, 3BP, 4BP, 4BP, and 2BP respectively. Credit bond yields also rose significantly, with 1Y - term credit bonds of all ratings rising by 5BP, 3Y - term by 6 - 8BP, 5Y - term by 5 - 6BP, 7Y - term by 10 - 11BP, and 10Y - term by 6 - 7BP. Credit spreads across all tenors increased, with 3Y and some long - term credit bonds having larger adjustment amplitudes [2][5]. - Rating spreads changed slightly, and term spreads showed different trends among different ratings and tenors [5]. II. The spreads of urban investment bonds at all levels have increased by 3BP on the whole - The credit spreads of external - rated AAA, AA +, and AA - level urban investment platforms increased by 3BP compared with last week, with different changes in different regions [2][9]. - The spreads of platforms at all administrative levels also increased by 3BP compared with last week, with most spreads of provincial, municipal, and district - county - level platforms rising [2][15]. III. Most industrial bond spreads have increased, while the spreads of mixed - ownership real - estate bonds have continued to decline - The spreads of central and state - owned real - estate bonds increased by 2 - 3BP, those of mixed - ownership real - estate bonds decreased by 4BP, and those of private real - estate bonds increased by 8BP. The spreads of some real - estate enterprises such as Longhu and Midea Real Estate decreased, while that of CIFI increased [2][17]. - The spreads of coal bonds at all levels increased by 2BP, those of steel bonds at all levels increased by 3BP, the spreads of AAA - level chemical bonds increased by 3BP, and those of AA + chemical bonds increased by 1BP [17]. IV. The yields of secondary and perpetual bonds have all increased, and the spreads of 3 - 5Y bonds have significantly widened again - The yields of 1Y - term secondary capital bonds of all ratings increased by 4 - 6BP, and the spreads increased by 0 - 1BP; the yields of 1Y - term perpetual bonds of all ratings increased by 4BP, and the spreads were basically flat [2][23]. - The yields of 3Y - term secondary capital bonds of all ratings increased by 6 - 9BP, and the spreads increased by 4 - 6BP; the yields of 3Y - term perpetual bonds of all ratings increased by 6BP, and the spreads increased by 4BP [23]. - The yields of 5Y - term secondary capital bonds of all ratings increased by 7 - 8BP, and the spreads increased by 3 - 4BP; the yields of 5Y - term perpetual bonds of all ratings increased by 6BP, and the spreads increased by 2BP [23]. V. The excess spreads of perpetual bonds have significantly increased - The excess spreads of industrial AAA 3Y perpetual bonds increased by 5.82BP to 15.99BP, at the 42.33% quantile since 2015; the excess spreads of industrial AAA 5Y perpetual bonds increased by 1.72BP to 13.55BP, at the 29.49% quantile since 2015 [2][25]. - The excess spreads of urban investment AAA 3Y perpetual bonds increased by 1.79BP to 5.13BP, at the 3.15% quantile; the excess spreads of urban investment AAA 5Y perpetual bonds increased by 4.84BP to 12.35BP, at the 17.90% quantile [25]. VI. Credit spread database compilation instructions - The overall market credit spreads, commercial bank secondary and perpetual spreads, and urban investment/industrial perpetual credit spreads are calculated based on ChinaBond medium - and short - term notes and ChinaBond perpetual bond data, with historical quantiles since the beginning of 2015; the credit spreads related to urban investment and industrial bonds are sorted and statistically analyzed by the R & D center of Cinda Securities, with historical quantiles since the beginning of 2015 [28]. - The calculation methods and sample screening criteria for various types of credit spreads are provided [31].

Core Viewpoint - The report analyzes historical market pullbacks during bull markets and identifies potential risk factors for the current market, emphasizing that while a pullback is not imminent, preparation is necessary for possible future risks [1][8]. Group 1: Historical Pullback Experiences - Liquidity tightening is the primary trigger for pullbacks in past bull markets, with macro liquidity tightening having a more profound impact on valuation and inflation levels [2][9]. - Micro liquidity tightening leads to more controllable pullbacks, often presenting opportunities for positioning [10]. - The report categorizes pullback causes into five main types: macro liquidity tightening, micro liquidity tightening, policy tightening, geopolitical events, and fundamental downturns, with macro liquidity tightening being the most frequent cause [9][11]. Group 2: Potential Future Pullback Triggers - Key macro liquidity factors to monitor include whether the current easing will meet expectations, particularly in light of anticipated U.S. Federal Reserve rate cuts [30]. - On the micro liquidity side, attention should be paid to margin account inspections, quantitative trading regulations, IPO lock-up releases, and significant ETF outflows [31]. - Geopolitical events, particularly the Russia-Ukraine conflict and U.S.-China trade negotiations, are critical areas for monitoring [32]. Group 3: Reiteration of Re-inflation Bull Market View - The current bull market is characterized by financial re-inflation, with the stock market serving as a vehicle for excess liquidity as cash product yields decline [39]. - The transition to the second half of the bull market is expected to focus on real asset re-inflation, with M1 leading PPI by 6-9 months [49]. - The report emphasizes the importance of fund recovery and reallocation effects, suggesting that as funds recover, redemption pressures may increase, but this does not necessarily indicate a long-term negative outlook [52].

Report Summary 1. Report Industry Investment Rating No investment rating information is provided in the report. 2. Report's Core View The report updates the fundamental data of aluminum, alumina, and cast aluminum alloy, showing the price, trading volume, inventory, and other indicators of these products in the futures and spot markets, and also mentions some related news and the trend strength of these metals [1][3]. 3. Summary by Related Catalogs Futures Market - **Aluminum**: The closing price of the Shanghai Aluminum main contract was 20,770, up 85 compared to T - 5 and 835 compared to T - 66. The trading volume and open interest showed different degrees of change. LME aluminum 3M closing price was 2,603, down 21 compared to T - 1. The LME注销仓单占比 was 2.94%, down 0.03% compared to T - 1 [1]. - **Alumina**: The closing price of the Shanghai Alumina main contract was 3,205, down 35 compared to T - 1 and up 75 compared to T - 5. The trading volume and open interest also changed [1]. - **Aluminum Alloy**: The closing price of the aluminum alloy main contract was 20,165, up 25 compared to T - 1. The trading volume and open interest decreased [1]. Spot Market - **Electrolytic Aluminum**: The electrolytic aluminum enterprise profit and loss was 3,971.96, with no change compared to T - 1. The aluminum spot import profit and loss and 3M import profit and loss showed different changes. The domestic aluminum ingot social inventory was 57.10 million tons, with no change compared to T - 1 [1]. - **Alumina**: The domestic average price of alumina was 3,270, with no change compared to T - 1. The alumina prices at different ports also showed different trends [1]. - **Aluminum Bauxite**: The prices of aluminum bauxite from different sources remained stable [1]. - **Aluminum Alloy**: The ADC12 theoretical profit was - 118, with no change compared to T - 1. The prices of related products and the three - place inventory also changed [1]. - **Caustic Soda**: The price of Shaanxi ion - membrane liquid caustic soda (32% folded) was 2,710, with no change compared to T - 1 [1]. Comprehensive News - **US Treasury Bonds**: Overseas demand for US Treasury bonds was resilient in June, with the three major "creditors" (Japan, the UK, and China) all increasing their holdings. However, India and Ireland, which are in a trade dispute with the Trump administration, reduced their holdings [3]. - **US Market Liquidity**: Barclays Bank predicted that bank reserves in the US would drop sharply below $3 trillion in September, but the risk of a serious "funding crunch" was low [3]. Trend Strength The trend strength of aluminum, alumina, and aluminum alloy was all 0, indicating a neutral trend [3].

Core Viewpoint - Barclays Bank predicts a significant decline in bank reserves below $3 trillion in September due to the reconstruction of the U.S. Treasury account, quarterly tax payments, and bond settlements, but the risk of severe "funding squeeze" remains low due to market resilience and the Federal Reserve's backup tools [1][3]. Group 1: Factors Leading to Liquidity Drain - The report identifies three main drivers contributing to the sharp decline in reserves in September, particularly around mid-month [4]. - The U.S. Treasury plans to restore its cash balance at the Federal Reserve (TGA) to a target level of $850 billion, which will inherently withdraw liquidity from the banking system [5]. - The quarterly tax payment deadline on September 15 is expected to result in approximately $100 billion or more flowing into the TGA, with an additional $30 billion on the 16th [6]. - On September 15, there will also be about $80 billion in net coupon settlements, with over $100 billion in settlements by the end of the month [7]. - The combined impact of tax and bond settlements on September 15 could withdraw nearly $200 billion in reserves from the banking system, leading to total reserves dropping below $3 trillion in mid-September and further declining to below $2.9 trillion by the end of the month [8]. Group 2: Market Resilience - Despite the looming liquidity shock, Barclays believes the market is prepared to handle the situation [10]. - The market has demonstrated its absorption capacity, having "calmly" digested up to $350 billion in net short-term Treasury issuance in August, with only a slight increase in the Secured Overnight Financing Rate (SOFR) [10]. - The pace of Treasury issuance is expected to provide a buffer in the second half of September, with a net short-term Treasury issuance of approximately $30 billion, and the net issuance turning negative due to the maturity of cash management bills (CMBs) [10]. Group 3: Federal Reserve's Backup Tools - The report emphasizes that the Federal Reserve's Standing Repo Facility (SRF) is crucial for mitigating tail risks in the market [12]. - The SRF allows eligible counterparties to borrow cash from the Federal Reserve at a fixed rate, providing a reliable liquidity ceiling for the market [12]. - The Federal Reserve has been enhancing the effectiveness of the SRF, including adding morning operation windows before the end of the quarter to lower usage barriers [12]. - Additionally, the report mentions that the Federal Reserve may introduce term repo operations to provide longer-term liquidity support in response to fluctuations in the Treasury account [12]. Group 4: Market Pricing and Vigilance - The report analyzes whether the risks have been priced into the market, noting that reserves as a percentage of total bank assets will drop below 12% but remain slightly above the "adequate level sweet spot" of 11% [13]. - The September interest rate futures market indicates that SOFR is expected to be about 4 basis points higher than the federal funds rate, which Barclays considers a "fair" pricing reflecting a certain "insurance premium" for the mid-month reserve decline and quarter-end volatility [13]. - Overall, the report conveys a clear message that while September's liquidity tightening will be severe and rapid, the risk of a systemic funding squeeze is low due to existing market resilience and strong Federal Reserve support [13].

Monetary Market Overview - The central bank conducted a net liquidity withdrawal of 70.5 billion CNY through OMO this week, while on Friday, it injected 200 billion CNY via MLF[3] - The average daily transaction volume of pledged repos rose by 0.45 trillion CNY to 7.70 trillion CNY, although it fell below the previous week by Friday[3] - The funding gap index dropped to -5012 on Tuesday but rebounded to -764 on Thursday, before falling again to -918 on Friday, remaining above last week's -3145[3] Bond Market Insights - The actual net payment of government bonds this week was 271 billion CNY, with cumulative new general bonds issued in 2025 reaching 517.4 billion CNY and new special bonds at 2.5944 trillion CNY[4] - The bond market experienced increased volatility, with concerns about a potential shift in monetary policy due to the central bank's actions[21] - The issuance scale of government bonds in July was 2.44 trillion CNY, with a net financing scale of 1.25 trillion CNY, which is approximately 150 billion CNY lower than expected[4] Institutional Behavior - Large banks' net financing fell below 4 trillion CNY, while the overall rigid net financing from banks reached a new low since late May[3] - Non-bank rigid financing saw a decrease followed by an increase, remaining above last week, with money market funds and other products showing an upward trend[3] - The cross-month progress in the interbank market was 19.9%, slightly below the 20-24 year average by 0.3 percentage points, but higher than the same period in 2022 and 2023[19]

Core Viewpoint - The Hong Kong dollar (HKD) has recently experienced significant fluctuations against the US dollar, triggering both the "strong-side convertibility guarantee" and the "weak-side convertibility guarantee" due to changes in liquidity and interest rates [1][2]. Group 1: Currency Exchange and Monetary Policy - On April 30, the HKD/USD exchange rate hit 7.75, activating the "strong-side convertibility guarantee" [2]. - From May 3 to 6, the Hong Kong Monetary Authority (HKMA) injected a total of 129.4 billion HKD into the market, leading to an expansion of HKD liquidity [2]. - The injection of HKD significantly lowered the HIBOR rates, with the 1-month HIBOR dropping from 3.65% in April to 0.67%, and overnight rates approaching 0% [2]. Group 2: Market Reactions and Expectations - The widening of the HKD-USD interest rate differential (HIBOR-SOFR) has prompted carry trades, resulting in a depreciation of the HKD, which is now approaching the "weak-side convertibility guarantee" at 7.85 [2]. - The HKMA is expected to tighten liquidity in the short term, which may alleviate the depreciation pressure on the HKD as HIBOR rates rise again [2]. - Historically, the HKD has touched the "weak-side convertibility guarantee" four times since 2017, leading to pressure on the Hang Seng Index and Hang Seng Tech Index during those periods [2].

Group 1: Report Summary - Report Date: May 25, 2025 [1] - Report Title: "Microstructure Crowding High, Convertible Bonds Guard Against Phased Adjustment" [1] - Analysts: Chen Xi, Liu Wei [2] Group 2: Market Review Asset Performance - Shanghai Composite Index and Wind All-A Index declined by 0.57% and 0.63% respectively, with the daily average trading volume of the whole market reaching 1.17 trillion yuan. The April industrial added value increased by 6.1% year-on-year, and the total retail sales of consumer goods increased by 5.1% year-on-year, in line with expectations. However, high micro-cap stock crowding and the rapid rise of US Treasury bonds led to a market correction [2]. - S&P 500 and Nasdaq fell by 2.61% and 2.47% respectively, related to the rapid rise of US Treasury bonds [2]. - London gold price rose by 4.86%, related to Moody's downgrade of the US sovereign rating and the rise of US Treasury bonds [2]. Convertible Bond Market - CSI Convertible Bond Index dropped 0.11%. As of May 23, the median convertible bond price, conversion premium rate, and pure bond premium rate were 120 yuan, 30.21%, and 14.18% respectively [2]. - In terms of industries, Medicine & Biology, Nonferrous Metals, and Automobiles performed well. The good performance of medicine may be related to SSGJ - 707, and nonferrous metals were mainly related to the sharp rise of gold. The market continued to rotate rapidly, lacking a leading sector [2]. Convertible Bond Terms - Bojun, Borui, Rundong, and Hao 24 decided not to redeem, while Hongchang, Hangyin, Falang, and Outong are expected to meet the redemption conditions. Jingke, Xiangjia, Fangyuan, Wentai, Leizhi, Meijin, Wenke, and Jianyou will not adjust the conversion price downward [3]. Group 3: Market Dynamics Economic Data - On May 19, the National Bureau of Statistics released April economic data. The industrial added value of large - scale industries increased by 6.1% year - on - year, and the total retail sales of consumer goods increased by 5.1% year - on - year. From January to April, the national fixed - asset investment (excluding rural households) increased by 4.0% year - on - year, with infrastructure investment increasing by 5.8%, manufacturing investment by 8.8%, and real estate development investment decreasing by 10.3%. The April economic data was generally in line with expectations but slightly weakened month - on - month, mainly related to the weak production of export enterprises in April. Infrastructure remained the main driving force of the economy [4]. Corporate Events - On May 22, at the 15th - anniversary strategic new product launch of Xiaomi, the Xiaomi 15S Pro and Xiaomi Pad 7 Ultra will be the first to be equipped with the SoC chip Xuanjie O1, and the Xiaomi YU7 made its debut. The 3nm Xuanjie O1 is manufactured by TSMC, and the YU7 is the first SUV, but the price is expected to be announced in July [4]. International Events - On May 16, Moody's downgraded the US sovereign credit rating from Aaa to Aa1 due to the increase in the US government's debt and interest payment ratio. On May 19, the yield of 30 - year US Treasury bonds exceeded 5% during intraday trading. The rapid rise of US Treasury bonds may tighten global liquidity and increase market risk aversion [4]. Market Index Events - On May 21, the Beixin 50 and micro - cap stock index hit record highs, possibly related to market speculation on small - cap companies. However, the current micro - cap stock crowding is obvious. The trading volume ratio of CSI 2000 to SSE 50 has reached a historical high, second only to November 2023 and December 2024. Attention should be paid to the possible adjustment caused by the retreat of micro - cap stocks [5]. Upcoming Events - Next week, pay attention to the May PMI data and the Huawei Zunjie S800 press conference [5]. Group 4: Convertible Bond Views Market Situation Analysis - This week's key market events include the record highs of the Beixin 50 and micro - cap stock index and the sharp rise of US Treasury bonds. The recent rapid rotation of market styles and the significant increase in the micro - cap stock index have led to overly obvious small - cap crowding and poor microstructure. After hitting record highs on May 21, there was a significant correction on May 22. Coupled with the tightening of global liquidity caused by the rapid rise of overseas US Treasury bonds, it is further negative for micro - cap stocks sensitive to liquidity [6]. - The market has fully priced in the "reciprocal tariffs" and "tariff easing" since April and the expectations for domestic policies under the tariff background. Before the Sino - US joint statement, the market had basically returned to the level before the "reciprocal tariffs" in terms of total volume, and the sectors that were significantly affected by tariffs had also rebounded significantly [6]. Outlook - Looking ahead, the phased new logic may be "deterioration of microstructure and tightening of liquidity", which may lead to phased market self - adjustment and correction. On one hand, the microstructure has deteriorated significantly due to the continuous rapid rotation of styles and the speculation on small - cap stocks. On the other hand, historical experience shows that the rapid rise of US Treasury bonds may trigger an adjustment in micro - cap stocks. The current rise of US Treasury bonds caused by Moody's downgrade of the US sovereign rating may also lead to liquidity tightening and trigger an adjustment in micro - cap stocks [7]. Recommended Targets - Stable targets include Shangyin, Changyin, Hua'an, Lantian, Wenshi and other convertible bonds; elastic targets include Zhongchong Zhuan 2, Daotong, Yinlun, Jizhi, Limin, Qianglian, Anji, Dinglong and other convertible bonds [7]

Economic Challenges - Japan's economy faced two major challenges: weak consumer market performance and export impacts due to tariffs [2][8] - In Q1 2025, Japan's GDP contracted by 0.2% quarter-on-quarter, marking the first decline since Q2 2024, with annualized GDP shrinking by 0.7% [2] - Private consumption remained flat in Q1, contributing only 0.1 percentage points to GDP growth, while net exports negatively impacted GDP growth by 3.3 percentage points due to a 0.6% decline in exports [2][3] Inflation and Consumer Spending - High inflation has led to stagnation in consumer spending, with the GDP deflator index rising by 3.3% year-on-year in Q1, surpassing the previous year's 3.1% [2] - Despite a 4.3% increase in employee compensation in Q1, real disposable income for households fell by 2.5% year-on-year, marking the third consecutive month of negative growth [3] Export and Tariff Impacts - The appreciation of the yen and U.S. tariffs have significantly impacted Japan's exports, with a reported 8.2% appreciation against the dollar as of May 20 [3][4] - In March, Japan's export growth slowed to 5.6% year-on-year, down from 9% the previous year, indicating a decline in export performance [3] Automotive Industry and Tariffs - The U.S. imposed a 25% tariff on key automotive parts, which could severely affect Japan's automotive industry, a critical sector contributing 50% of manufacturing output and 30% of total exports [4] - Estimates suggest that U.S. tariffs could reduce Japan's GDP by 0.59% and lead to a potential profit loss of nearly $30 billion in the automotive sector [4] Monetary Policy and Market Conditions - The Bank of Japan is in a difficult position, needing to balance interest rate normalization with the risk of further economic suppression and currency depreciation [5] - As of May 10, the Bank of Japan's total assets decreased by 3.6% year-on-year, indicating tightening liquidity conditions [5][7] Bond Market and Liquidity Issues - Japan's bond market is experiencing significant sell-offs due to tariff impacts and quantitative tightening, leading to liquidity pressures [7] - The auction for 20-year government bonds on May 20 was the worst since 2012, with a bid-to-cover ratio dropping to 2.5 times, reflecting market concerns [7] Overall Market Outlook - Japan's economy is under pressure from weak consumption and tariff impacts, with the potential for significant risks in the stock market [8] - Investors may consider using micro Nikkei 225 index futures to hedge against these risks in the current economic climate [8]