Core Viewpoint - The bond market experienced a downturn on September 18, with government bond futures closing lower and interbank bond yields rising by 1-2 basis points. The central bank's recent liquidity injections are expected to stabilize the financial environment and support economic recovery [1][5]. Market Performance - Government bond futures closed down across the board, with the 30-year main contract falling by 0.17% to 115.620, the 10-year contract down by 0.05% to 108.080, and the 5-year and 2-year contracts also declining slightly [2]. - The interbank yield on major bonds rose slightly, with the 30-year government bond yield increasing by 1.6 basis points to 2.071%, and the 10-year government bond yield rising by 1.45 basis points to 1.7775% [2]. International Bond Market - In North America, U.S. Treasury yields rose collectively, with the 2-year yield increasing by 4.99 basis points to 3.545% and the 10-year yield up by 6.12 basis points to 4.089% [3]. - In Asia, Japanese bond yields also saw a general increase, while in the Eurozone, yields on 10-year bonds from France, Germany, Italy, and Spain experienced slight declines [3]. Primary Market - The Export-Import Bank's 1-year fixed-rate bond had a winning bid rate of 1.3784%, with a total bid-to-cover ratio of 1.78. The China Development Bank's 3-year and 7-year financial bonds had winning yields of 1.7393% and 1.95%, respectively [4]. Liquidity Conditions - The central bank conducted a 7-day reverse repurchase operation of 487 billion yuan at a fixed rate of 1.40%, resulting in a net liquidity injection of 195 billion yuan for the day [5]. - Short-term Shibor rates mostly increased, with the overnight rate rising by 3.1 basis points to 1.514% [5]. Institutional Perspectives - Citic Securities noted that expectations for the central bank to resume government bond purchases have increased, providing some support for interest rates amid market adjustments and rising government debt supply pressures [6]. - Long-term views suggest that the core logic is shifting towards the "14th Five-Year Plan" policy orientation, with interest rates expected to remain low to alleviate fiscal pressures [7]. - Huachuang Fixed Income highlighted a liquidity gap of approximately 1.7 trillion yuan in September, indicating a seasonal high level, and anticipates that the central bank will take active measures to stabilize liquidity [7].

Market Performance - Government bond futures closed higher across the board, with the 30-year main contract rising by 0.31%, the 10-year main contract up by 0.13%, the 5-year main contract increasing by 0.10%, and the 2-year main contract gaining 0.04% [1] - The yields on major interbank bonds generally declined, with the 10-year policy bank bond "25国开15" yield down by 2.25 basis points to 1.8975%, the 10-year government bond "25附息国债11" yield down by 1.9 basis points to 1.7610%, the 30-year government bond "25超长特别国债02" yield down by 2.6 basis points to 2.0490%, and the 20-year government bond "25超长特别国债04" yield down by 4 basis points to 2.13% [1] Funding Situation - The central bank announced a fixed-rate reverse repurchase operation of 418.5 billion yuan for 7 days on September 17, with an operation rate of 1.40%, and the total bid amount matching the amount allocated [2] - On the same day, 304 billion yuan of reverse repos matured, resulting in a net injection of 114.5 billion yuan [2] - The Ministry of Finance and the central bank conducted a tender for 2025 central treasury cash management deposits, with a total bid amount of 150 billion yuan and a bid rate of 1.78% [2] - The overnight repo weighted rate for deposit institutions rose to around 1.48%, while the quotes for non-bank institutions' pledged certificates and credit bonds also increased to around 1.6% [2] - As the peak of tax payment approaches its end, the funding situation is expected to ease [2] Operational Suggestions - The sentiment in the bond market has improved, supported by expectations of the central bank restarting bond purchases [3] - The bond market remains mixed, with uncertainties regarding market risk appetite, policies to expand domestic demand, and quarter-end institutional behaviors [3] - Without significant negative factors, the 10-year government bond yield may find resistance around 1.75%, while the T2512 contract is expected to fluctuate between 107.5 and 108.35 [3] - A cautious approach is recommended for investors, focusing on range trading in the short term [3]

Macro Strategy - Trump's intervention in the independence of the Federal Reserve is expected to occur through three main avenues: nominating a compliant Fed Chair, adjusting the personnel structure of the Fed Board, and intervening in the appointment of regional Fed presidents [1][18] - With the new Fed Chair's appointment, Trump is anticipated to have greater influence, potentially leading to more aggressive rate cuts than currently priced in by the market, with the policy rate possibly falling below the neutral level of 3% [1][18] Economic Commentary - In August, both domestic and external demand weakened, leading to a situation where supply adjustments lag behind demand, reinforcing a short-term scenario of strong supply and weak demand [2][19] - The industrial production growth rate remained above 5%, indicating resilience in the supply side despite a slight decline, while GDP growth is expected to remain around 5% in Q3 [2][19] - The divergence between supply and demand is unsustainable, and if demand does not strengthen, supply is likely to follow suit, leading to greater pressure on GDP in Q4 compared to Q3 [2][19] Fixed Income Market - The market is seeing an increase in expectations for the resumption of "government bond trading," with significant liquidity measures being implemented, including a 1 trillion yuan reverse repo operation [4][22] - The anticipated resumption of government bond trading could stabilize bond yields and further lower financing costs for the real economy [4][22] Industry Analysis - The battery sector is expected to see price increases for energy storage cells, marking the end of a three-year deflation period, with leading companies like CATL and others showing strong performance [15] - The report highlights a positive outlook for the battery sector, particularly for companies with low valuations and strong earnings potential, such as Tianqi Lithium and others [15] - The solid-state battery segment is also emphasized as a key area for investment, with companies like Xiamen Tungsten and others being recommended [15]

Macro Strategy - Trump's intervention in the independence of the Federal Reserve is expected to occur through three main avenues: 1) appointing a Fed chair who is loyal to him, anticipated to be nominated in November and take office in May next year; 2) restructuring the Fed Board to eliminate dissenting members and install loyalists; 3) influencing the appointment of regional Fed presidents whose terms expire in February [1][20]. - With the new Fed chair's appointment, it is projected that the Fed will have a more significant influence on monetary policy, potentially leading to a greater than expected rate cut in 2026, with policy rates possibly falling below the neutral level of 3% [1][20]. Economic Data Analysis - In August, both domestic and external demand weakened, with supply adjustments lagging behind demand, reinforcing a short-term scenario of strong supply and weak demand. Specifically, investment has shown negative growth for two consecutive months, and retail sales growth has been declining since May [2][21]. - The divergence between supply and demand is expected to yield three outcomes: 1) GDP growth will align more closely with supply data, with Q3 GDP growth projected around 5%; 2) the current supply exceeding demand may increase price pressures, necessitating stronger policy support for price recovery; 3) if demand does not strengthen, supply will likely follow suit, leading to greater pressure on Q4 GDP compared to Q3 [2][21]. Industry Insights - The gaming industry in H1 2025 has shown strong performance, driven by innovative categories such as "micro-horror search and escape" and "overseas SLG," which have positively impacted the performance and valuation of corresponding companies [15]. - In the shipbuilding sector, new ship price indices remain high, and the merger of major shipbuilding companies is nearing completion, suggesting a favorable outlook for companies like China Shipbuilding [15]. - The environmental sector is seeing advancements in pricing mechanisms for renewable energy, particularly in waste-to-energy projects, which could enhance the economic viability of green electricity supply [17][18].

1. Report Industry Investment Rating No relevant content provided. 2. Core View of the Report The timing for the central bank to restart treasury bond trading opportunistically may be gradually maturing. If restarted, it may take forms such as "buying short and selling long" (though "selling long" may not be necessary currently), directly "buying short", or moderately lengthening the duration of purchased treasury bonds. The impact on the market is expected to be relatively neutral [7][8][10]. 3. Summary According to the Table of Contents 3.1 Treasury Bond Trading Expected to Restart Opportunistically - From January to August 2025, the central bank suspended treasury bond trading operations for eight consecutive months. Currently, considering the treasury bond yield situation and the subsequent government bond issuance plan, the timing for restarting treasury bond trading may be gradually maturing. The current 10 - year treasury bond active bond yield has reached 1.80%, which opens up space for the restart. From the perspective of central bank - fiscal coordination, restarting treasury bond trading can enhance bond market liquidity and reduce fiscal financing costs [7][16][17]. 3.2 Possible Forms of Restarting Treasury Bond Trading 3.2.1 The Initial Operation Form of Treasury Bond Trading in 2024: "Buying Short and Selling Long" - In August 2024, the central bank announced treasury bond trading in the open market, specifically "buying short - term treasury bonds from some primary dealers in the open market and selling long - term treasury bonds". The central bank borrowed long - term bonds from some institutions for selling. However, currently, "selling long" may not be necessary as the policy - end demand for regulating treasury bond yields is not strong, and "selling long" may have a greater impact on short - term treasury bond yields [18][19][23]. 3.2.2 Similar to the Latter - Half Operation Form of Treasury Bond Trading in 2024: Directly "Buying Short" - In the latter half of 2024, the central bank may have directly "bought short". There were many treasury bonds with a maturity of less than 1 year. If the central bank directly "buys short" this year, the large - scale net purchase of short - term treasury bonds by large banks since early June can smooth the impact on the secondary market [24][27][29]. 3.2.3 The Central Bank May Moderately Lengthen the Duration of Purchased Treasury Bonds - From the perspective of stabilizing the central bank's treasury bond holding scale and improving the term arrangement of liquidity injection, the central bank may moderately lengthen the duration of purchased treasury bonds. The maturity of purchased treasury bonds does not lead to the central bank's liquidity withdrawal [34][35]. 3.3 The Impact of Restarting Treasury Bond Trading on the Market May Be Relatively Neutral - The central bank is expected to balance the liquidity injection of multiple tools. The current adjustment of the bond market is not mainly due to monetary policy. If short - term treasury bonds are purchased, the large - scale net purchase of short - term treasury bonds by large banks can buffer the impact. Primary dealers may play a role in stabilizing market fluctuations [10][37][41].

Macro Strategy - Trump's intervention in the independence of the Federal Reserve is expected through three main avenues: nominating a chairman aligned with his interests, restructuring the board to include loyalists, and influencing the appointment of regional Fed presidents [1] - The anticipated changes in the Fed's leadership could lead to a more accommodative monetary policy, with potential interest rate cuts exceeding current market expectations, possibly resulting in a shift from a soft landing to moderate economic expansion in the U.S. [1] Economic Data Review - In August, both domestic and external demand weakened, leading to a situation where supply adjustments lag behind demand, reinforcing a short-term scenario of strong supply and weak demand [2][3] - Investment has shown negative growth for two consecutive months, while retail sales growth has been declining since May, indicating a comprehensive weakening of demand [2] - Despite the demand weakness, supply remains high, with industrial and service production growth rates above 5%, suggesting that GDP growth may align more closely with supply data [2] Financial Market Insights - The market is increasingly anticipating the resumption of "government bond trading," with expectations rising for the end of the year, which could stabilize bond yields and further lower financing costs for the real economy [4][5] - The recent financial data indicates a seasonal rebound, but loan demand remains weak, which could lead to a decline in social financing growth and M2 money supply growth [4][6] Industry Insights - The renewable energy sector is seeing improvements in pricing mechanisms that facilitate local consumption of green electricity, which is expected to benefit companies involved in waste-to-energy and SAF production [10] - The construction materials industry is advised to focus on domestic demand changes, with expectations of a recovery in retail construction materials as the market adjusts [11][12] - The public utilities sector is recommended for investments in companies like South Grid Energy and South Grid Storage, which are expected to benefit from new pricing mechanisms and increased demand for energy storage [13] Automotive Sector - The automotive sector is entering a new phase, with a focus on electric and intelligent vehicles, and recommendations for increasing exposure to companies benefiting from these trends [15][16] - The recent government initiatives aim to stabilize growth in the automotive industry, with a focus on both scale and quality [15] Non-Banking Financial Sector - The non-banking financial sector is characterized by low average valuations, presenting opportunities for investment, particularly in insurance and securities [20] - The insurance sector is expected to benefit from economic recovery and rising interest rates, while the securities sector is poised for growth due to favorable market conditions [20] Coal Industry - The coal industry is entering a seasonal downturn, with expectations of fluctuating prices due to reduced demand as temperatures drop [21] - Recommendations include focusing on resilient coal companies that can withstand market pressures [21] Oil and Gas Sector - The oil and gas sector is facing challenges with OPEC+ increasing production, leading to a decline in international oil prices [25] - Companies involved in oil exploration and production are recommended for investment, given the potential for price recovery in the long term [25]

Summary of Conference Call Notes Industry Overview - The focus is on the bond market and macroeconomic conditions in China, particularly in relation to interest rates and economic growth forecasts [1][2][3][4][5][6]. Key Points and Arguments 1. **Economic Data Predictions**: August economic data is expected to weaken due to factors like anti-involution policies, but a rebound may occur in September due to seasonal end-of-quarter effects. If the current pace of industrial value-added growth is maintained, it could exceed 6% for the year, with GDP growth projected above 5% [1][4][5]. 2. **Bond Market Performance**: The bond market is currently underperforming, influenced by seasonal institutional behaviors and regulatory pressures. However, there may be opportunities in the fourth quarter [6]. 3. **Impact of New Lending Regulations**: New regulations on centralized lending are expected to have limited short-term negative effects but aim to improve market mechanisms in the long term, benefiting short-selling activities [7]. 4. **Conditions for Resuming Government Bond Trading**: The resumption of government bond trading is contingent on factors such as Sino-US relations, economic fundamentals, fiscal expansion, and financial risks. There is a high necessity for this to occur within the year [8][9]. 5. **Market Impact of Resuming Bond Trading**: Resuming government bond trading is seen as a positive development for the market, increasing demand for bonds, providing medium to long-term liquidity, and reducing costs for financial institutions, which helps stabilize market expectations [10]. 6. **Social Financing Data**: Recent social financing data shows a decline in growth for August, raising concerns about whether this trend will continue and if local government debt funds will be disbursed early in the fourth quarter [11]. 7. **Trends in Deposits**: There is a notable decrease in resident deposits below seasonal norms, while non-bank deposits have surged, primarily due to the expansion of wealth management products leading to financial disintermediation. This trend should not be simplistically interpreted as funds moving into the stock market [12][13]. Additional Important Insights - **Investment Strategy Recommendation**: In the current high-interest rate environment, a barbell strategy is recommended for investment portfolios, focusing on medium to high-grade credit bonds for the short term and long-term government bonds for flexibility [2][14]. Specific recommendations include 25T6 for three-year government bonds and 250,215 for ten-year bonds from the China Development Bank [2][14].

Economic Indicators - The weekly ECI supply index is at 50.04%, up 0.01 percentage points from last week, while the demand index is at 49.91%, also up 0.01 percentage points[6] - The monthly ECI supply index decreased by 0.03 percentage points from August, while the demand index increased by 0.01 percentage points[7] - The construction sector shows improvement with a significant increase in infrastructure workload in early September, with a year-on-year improvement in construction activity[6] Market Trends - The ELI index remains stable at -0.69%, indicating rising market expectations for the resumption of government bond trading[11] - Despite seasonal recovery in August financial data, new loan demand remains weak, posing risks to social financing growth and M2 supply[14] - The real estate market shows signs of recovery, with a 6.8% increase in transaction area in major cities compared to a -9.9% decline in August[6] Consumer Behavior - Passenger car retail sales in early September show a decline of 10.0% year-on-year, with average daily sales recorded at 43,483 units[21] - The consumer price index for key monitored vegetables is at 5.11 yuan/kg, reflecting a slight increase[38] Investment Insights - The operating rate for asphalt plants increased by 6.80 percentage points to 34.90%, indicating a recovery in infrastructure investment[26] - The average price of ordinary Portland cement is recorded at 272.80 yuan/ton, showing a slight increase[27] Export Performance - The export growth rate for South Korea in early September is at 3.80%, recovering from a previous decline[32] - The Shanghai export container freight index decreased to 1398.11 points, down 46.33 points from the previous week[33] Monetary Policy - The central bank conducted a net monetary injection of 196.1 billion yuan this week, with a total reverse repurchase operation of 1.2645 trillion yuan[41] - The 10-year government bond yield increased slightly to 1.8650% from 1.8466% at the beginning of the week[41] Risk Factors - Uncertainties remain regarding U.S. tariff policies and the sustainability of real estate market improvements[48]

Summary of Conference Call Notes Industry Overview - The discussion primarily revolves around the Chinese bond market and its relationship with monetary policy, particularly in the context of potential easing measures by the People's Bank of China (PBOC) in response to external economic conditions and domestic growth needs [1][2][4]. Key Points and Arguments 1. **Monetary Policy Correlation**: Historically, there has been a synchronization between the monetary policies of the US Federal Reserve and the PBOC. For instance, after the Fed's rate cuts in 2019 and 2024, the PBOC followed suit by lowering rates [2]. 2. **Current Economic Environment**: The external environment in 2025 differs from previous years, with a stronger RMB against the USD since April, reducing external balance pressures. This may lead to a weaker correlation between US and Chinese monetary policies [2][4]. 3. **Liquidity Tools**: The PBOC has been utilizing tools like reverse repos and Medium-term Lending Facility (MLF) to meet liquidity needs, indicating that the urgency to restart government bond purchases is relatively low [1][4]. 4. **Market Stability**: In a stable market with little change in the yield curve, there is no immediate need for the PBOC to alter interest rates. However, unexpected market shifts could prompt a reassessment [5][6]. 5. **Economic Performance**: The Chinese economy has shown signs of weakness in domestic demand, particularly after Q2 2025, necessitating potential monetary easing to stabilize growth [7]. 6. **Stock and Bond Market Dynamics**: The current stock market has not significantly impacted bond market sentiment. As long as bank liabilities remain stable, the likelihood of a major adjustment in the bond market is low [8]. 7. **Investment Strategy Recommendations**: It is suggested to adopt a leveraged coupon strategy and remain flexible in trading operations, especially if external demand weakens further [9]. 8. **Bond Switching Conditions**: Both 10-year and 30-year bonds are eligible for switching to the next active bond, but the pace for 30-year bonds is faster. The current spread between new and old bonds has narrowed, limiting further arbitrage opportunities [10]. Other Important Insights - The potential for the PBOC to restart government bond purchases is being discussed, but it is viewed more as a protective measure rather than a catalyst for growth [2][4]. - The market's expectation for monetary easing remains subdued despite recent economic adjustments, indicating a cautious outlook [7][9].

Core Viewpoint - The People's Bank of China (PBOC) announced a 1 trillion yuan reverse repurchase operation to maintain liquidity in the banking system, indicating a continuation of its flexible monetary policy approach [1][5][6]. Group 1: Monetary Policy Operations - The recent reverse repurchase operation is a routine measure, reflecting a shift in the operation model since June, moving from monthly disclosures to flexible, pre-announced operations [6][7]. - The 1 trillion yuan operation is an equal rollover, consistent with seasonal patterns, and does not indicate a change in policy stance [6][7]. - Since May, the PBOC has maintained a trend of net liquidity injection, with August seeing a net injection of 300 billion yuan through reverse repos and MLF [2][7]. Group 2: Future Monetary Policy Space - Potential future monetary policy actions include restarting government bond transactions, contingent on increased counter-cyclical adjustment pressures and favorable interest rates [3][8]. - Targeted support for sectors such as real estate and consumption is anticipated to bolster financing demand and improve broad liquidity [3][8]. Group 3: Asset Pricing Implications - There exists a substitution logic between narrow and broad liquidity; if broad liquidity does not expand effectively, narrow liquidity may appear ample, but weak earnings could hinder pricing [4][9]. - The market dynamics observed in July and August indicate a scenario of ample narrow liquidity but weak broad liquidity, with future pricing volatility likely influenced by the relationship between broad liquidity and corporate earnings [4][9].