Report Information - Report Date: July 3, 2025 [2] - Industry: Treasury Bonds [1] - Research Team: Macro Financial Team [4] - Researchers: He Zhuoqiao, Huang Wenxin, Nie Jiayi [3] Investment Rating - No investment rating information is provided in the report. Core View - After the month - end, the funds continued to be loose, and treasury bond futures recovered and rose. The yields of major term interest - rate bonds in the inter - bank market declined across the board. The short - end declined by 1 - 2bp, and the long - end fluctuated less than 1bp. The funds became looser after the quarter - end, and there was a net withdrawal in the open market. In July, short - term bond varieties in the bond market may have more certainty. The short - term 2 - year and 5 - year varieties may perform relatively better [8][9][11][12] Summary by Directory 1. Market Review and Operation Suggestions - **Market Performance**: Treasury bond futures recovered and rose due to loose funds. The yields of major term interest - rate bonds in the inter - bank market declined across the board, with the short - end down 1 - 2bp and the long - end fluctuating less than 1bp. The 10 - year treasury bond active bond 250011 yield reported 1.6385%, down 0.35bp [8][9] - **Funding Market**: After the quarter - end, funds became looser, and there was a net withdrawal in the open market. There were 3653 billion yuan of reverse repurchase maturities, and the central bank conducted 985 billion yuan of reverse repurchase operations, resulting in a net withdrawal of 2668 billion yuan. Short - term inter - bank fund rates declined across the board [10] - **Conclusion**: In July, short - term bond varieties in the bond market may have more certainty. Although the marginal slowdown of export rush still supports the economy, the progress of tariff negotiations is slow but there is no further conflict escalation. The tone of the Politburo meeting in July may continue that of April, and the policy stimulus may be limited. The supply pressure in July has increased significantly, but there is a possibility that the central bank will restart treasury bond trading, which may support the stable and loose funding situation. The short - term 2 - year and 5 - year varieties may perform relatively better [11][12] 2. Industry News - The Minister of Finance called on developed countries to fulfill official development assistance commitments and climate financing obligations, improve the voice of developing countries in the international financial architecture, and promote trade and investment liberalization and facilitation [13] - Sichuan Province issued measures to support urban village and dilapidated building renovation projects to seek central budget investment and special bonds, and strive for central budget investment and ultra - long - term special treasury bond funds [13] - In June, the manufacturing PMI, non - manufacturing business activity index, and comprehensive PMI output index all rebounded, indicating that China's economic prosperity remained in the expansion range [13] - The central bank's monetary policy committee suggested increasing the intensity of monetary policy regulation and improving its forward - looking, targeted, and effectiveness. It also proposed to increase the revitalization of existing commercial housing and land [14] - A central bank monetary policy committee member said that virtual assets, digital assets, and traditional financial assets will coexist in the long term. Digital assets are a major development trend, and there is a possibility of issuing stablecoins pegged to the offshore RMB in Hong Kong [14] 3. Data Overview - **Treasury Bond Futures Market**: The report presents data on treasury bond futures trading on July 2, including contract prices, trading volumes, and positions. It also mentions the spread between different contracts and the trend of the main contracts [6] - **Money Market**: The report shows the changes in SHIBOR term structure, SHIBOR trend, inter - bank pledged repo weighted interest rate, and silver - deposit inter - bank pledged repo rate [28][32] - **Derivatives Market**: The report includes the Shibor3M interest rate swap fixed - rate curve (mean) and the FR007 interest rate swap fixed - rate curve (mean) [34]

Core Viewpoint - The article emphasizes the strategy of "buying rumors and selling news," suggesting that investors should trust their expectations when they arise and act accordingly, while being skeptical when actual news is released [1]. Group 1: Market Conditions - The current funding environment is balanced and slightly loose, with long-term bond yields experiencing a slight decline [2]. - The central bank conducted a 197.3 billion yuan reverse repurchase operation, with a total of 183.3 billion yuan net withdrawal due to maturing reverse repos and MLF [2]. - The overnight funding rates are slightly down, with DR001 around 1.37% and DR007 around 1.52% [2]. Group 2: Bond Market Dynamics - The bond market showed cautious sentiment in the morning, with the 10-year government bond yield opening at 1.64% and peaking at 1.6475% before fluctuating down to around 1.634% [4]. - The market is influenced by rumors of the resumption of government bond trading and the inclusion of short-term government bonds in reserve requirements [4]. - The bond futures market has shown signs of recovery after a period of stagnation, indicating a shift in investor sentiment [5]. Group 3: Price Movements - The second-hand housing prices have returned to levels seen in early 2017, indicating a significant market adjustment [5]. - The price of a bottle of 25-year Flying Moutai has dropped to 1960 yuan, marking the first time it has fallen below the 2000 yuan psychological barrier since 2021 [5].

Core Viewpoint - The People's Bank of China (PBOC) is maintaining a moderately loose monetary policy despite a net withdrawal of liquidity through reverse repos in May, indicating a stable approach to managing market liquidity [1][4]. Group 1: Reverse Repo Operations - In May, the PBOC conducted a total of 700 billion yuan in reverse repo operations, with 400 billion yuan for 3-month (91 days) and 300 billion yuan for 6-month (182 days) maturities [3]. - The net withdrawal of 200 billion yuan in reverse repos does not imply a tightening of market liquidity, as the PBOC has various channels for injecting liquidity, including Medium-term Lending Facility (MLF) and structural tools [1][4]. Group 2: MLF and Liquidity Management - The MLF has seen a net injection of 375 billion yuan in May, reflecting the PBOC's commitment to maintaining medium-term liquidity [1][4]. - The PBOC's reliance on MLF has increased since the introduction of fixed quantity, interest rate bidding, and multiple price auctions for MLF operations, which helps stabilize expectations for financial institutions [4]. Group 3: Government Bond Transactions - The PBOC has not conducted any government bond transactions since January, with expectations to resume operations in July or August, depending on market conditions [5][6]. - The resumption of government bond transactions is seen as urgent to enhance the PBOC's holdings of government debt and to support the establishment of a sovereign credit model for currency issuance [6].

Core Viewpoint - The article discusses the potential for the upward limit of equity assets to be opened further through three emerging clues: government investment acceleration, supply-demand relationship management, and improvements in US-China trade relations. Group 1: Government Investment - Government investment is expected to accelerate following the issuance of special bonds and project implementation, with significant activity anticipated in May. The issuance of special bonds began on April 24, and the acceleration of project implementation is expected to lead to increased construction activity, particularly in urban renewal projects [2][4]. - The economic data from April indicates that while equipment and appliance sales are strong, the real estate and narrow infrastructure sectors are lagging, with fixed asset investment showing a year-on-year increase of only 3.6% [2]. Group 2: Supply-Demand Relationship - New signals from policies indicate a shift towards managing low prices and addressing "involution" competition. The central bank's report emphasizes a transition from managing high prices to low prices, aiming for high-quality development and preventing disorderly competition [3]. - The past two years have seen nominal growth rates lag behind actual growth, leading to higher real interest rates, which in turn dampen investment and consumption. Improving the supply-demand balance is seen as a pathway to raise the price level and stimulate economic activity [3]. Group 3: US-China Trade Relations - Recent communications between US and Chinese officials following the Geneva talks are viewed as a positive signal for improving macroeconomic uncertainty. Enhanced relations could lead to simultaneous improvements in the economic fundamentals and risk appetite [4]. Group 4: Market Performance - The week of May 22 saw significant upward pressure on risk-free rates in the US, leading to a "risk-off" sentiment in global markets. The S&P 500, NASDAQ, and Dow Jones all recorded declines of approximately 2.5% [5]. - The Hong Kong Hang Seng Index outperformed global markets, rising by 1.1%, while A-shares showed mixed performance with a slight decline in technology stocks [5][6]. Group 5: Commodity Market Dynamics - The commodity market displayed divergence, with gold leading gains amid geopolitical risks and tightening liquidity. Gold prices rose by 5.0% for London gold and 5.6% for COMEX futures, while copper also saw a slight increase [6][7]. - Oil prices adjusted downwards, with Brent crude futures falling by 1.0% during the same period [6]. Group 6: Economic Indicators - Industrial production in May is expected to show resilience, with a year-on-year growth estimate of 5.99%, supported by export demand. The actual and nominal GDP growth rates for May are projected at 5.24% and 4.10%, respectively [14]. - Consumer price index (CPI) and producer price index (PPI) estimates indicate slight declines, with PPI expected to be -2.98% year-on-year, reflecting ongoing price pressures in the industrial sector [15][16]. Group 7: Policy Developments - The State Council approved the "Manufacturing Green Low-Carbon Development Action Plan (2025-2027)," emphasizing the need for green technology innovation and the transformation of traditional industries [24]. - The government is focusing on addressing "involution" competition to promote healthy industrial development and enhance market competition [25].

Group 1: Investment Rating - No investment rating for the industry is provided in the report. Group 2: Core Viewpoints - The report focuses on the resumption of Treasury bond trading by the central bank. It points out that the release of the "2025 Q1 China Monetary Policy Implementation Report" has heightened market expectations. The central bank's Treasury bond trading aims at base - money injection and liquidity management, but it may have a side - effect on bond yields. To minimize this side - effect, optimization can be considered in terms of timing, issuance methods, and mechanism arrangements [1]. Group 3: Summary by Directory 1. Timing - Buying should be done when the supply (or supply expectation) of the bond market significantly increases and the market fears oversupply. At this time, the market is less sensitive to the central bank's buying operations. However, if the market is in a long - term "bull market thinking", the central bank's operations may become passive. Also, the disclosure of operation information and market expectations can affect the bond market [2]. 2. Issuance Methods - Treasury bonds can be issued to individual members of the Treasury bond underwriting syndicate on a targeted basis and then transferred to the central bank. This method was used in 2007 when 1.35 trillion yuan of the over 1.5 trillion yuan of special Treasury bonds were issued in this way. It won't disrupt the bond market's supply - demand balance or trigger unreasonable expectations of a rapid decline in yields [2]. 3. Mechanism Arrangements - The timing, scale, and maturity of Treasury bond issuance should be jointly determined by the Ministry of Finance and the central bank. This arrangement can maintain the stable development of the bond market and control the issuance cost of government bonds [3].