Report Industry Investment Rating - Not provided in the document Core Viewpoints of the Report - The bond market remains in a narrow - range oscillation. Factors such as "anti - involution" and "strict payment terms" are structural reform measures that may have short - term impacts on the bond market sentiment, but the overall situation of the bond market has not changed. It is recommended to maintain a portfolio of 3 - year policy financial bonds + 10 - year + 4 - 5 - year credit bonds [2][3][57] - The "anti - involution" and "strict payment terms" are beneficial for improving resource allocation efficiency, but their short - term impact on investment demand may be limited. The long - term impact on the economy needs to be further observed [3][38][54] Summary by Relevant Catalogs I. The central bank maintains relative looseness within the established framework, and the unfreezing of collateral bonds has limited benefits - In June, the excess reserve ratio rose to 1.3%, lower than the expected 1.5%. The increase in the central bank's claims on other depository corporations was basically in line with high - frequency data, which might be the core factor for the lower - than - expected excess reserve ratio [6] - The central bank's short - term motivation to further relax the aggregate policy has weakened, but its concern about the bond investment risks of small and medium - sized banks has eased, and the constraint of long - term interest rates on liquidity loosening has decreased [13] - The actual capital situation was affected by the tax period. The central bank increased its net investment, and the capital tightened first and then loosened slightly. The short - term capital factor may not drive the interest rate to a new low [14][16] - The central bank's proposed cancellation of the freezing of collateral bonds for bond repurchases may indicate a consideration to restart bond purchases. The expectation of bond purchases may have a limited positive impact on the short - end, but it is unlikely to drive the interest rate to a new low in the short term [16][18] II. Domestic demand weakened significantly in June, but the improvement of financial data boosted macro - expectations - In June, the industrial added - value growth rate reached 6.8%, driven by the increase in export delivery value. However, the Q2 GDP growth rate dropped to 5.2% due to the negative growth of the construction industry [19] - From the demand side, except for the improvement of external demand driven by export rush, consumption and investment growth declined significantly in June. The pressure on external demand may further emerge after July, and consumption growth may face pressure without further policy support [25][29] - In June, fixed - asset investment growth rate turned negative, and real - estate sales declined. The sustainability of the rebound in real - estate new construction and completion needs to be observed [32] - In June, financial data was relatively strong. The increase in social financing scale and credit was mainly due to government bond financing and enterprise short - term loans, which may be affected by the strict payment terms of central and state - owned enterprises. This has boosted the expectation of economic improvement and affected the bond market sentiment [35][37][38] III. "Anti - involution" and "strict payment terms" are part of the structural reform, and their short - term impact should not be overestimated - "Anti - involution" and "strict payment terms" are structural reform measures to improve resource allocation efficiency. Strict payment terms are beneficial for accelerating the cash recovery of upstream and mid - stream enterprises, but may not significantly boost investment demand in the short term [3][38][47] - The "anti - involution" mainly restricts local government behavior. The current over - capacity is mainly concentrated in the mid - and downstream sectors, and it is more difficult to clear the over - capacity through administrative orders. Without demand - side support, its impact on inflation may take longer to appear [50][51][54] - The implementation of "anti - involution" needs to be further observed, as the central bank's policy on credit has changed between 2024 and 2025 [56] IV. The main contradiction in the bond market has not changed. Be patient and wait for the break of the oscillation pattern - The main contradiction in the bond market has not changed. The narrow interest - rate spread space makes it difficult for the slowdown of economic momentum to prompt the central bank to implement a new round of loosening policies. The long - term interest rate remains in a narrow - range oscillation [57] - If the incremental policies of the Politburo meeting in late July are limited, the A - share market may enter a correction, and the downward pressure on the fundamentals may further appear, which may drive a qualitative change in the bond market. It is recommended to switch from non - active bonds to active bonds and maintain the current bond portfolio [57][58]

Investment Rating - The report maintains a positive outlook on the banking sector, indicating a preference for absolute and relative returns in the long term [3][5]. Core Insights - The report highlights that the growth rate of M1 has rebounded significantly, driven by three main factors: low base effect, increased fiscal efforts, and strict payment terms [3][12]. - The implementation of the "Regulations on Payment of Funds to Small and Medium-sized Enterprises" is expected to reduce payment delays from large enterprises to SMEs, thereby enhancing liquidity through short-term loans and bond issuance [2][3]. - Despite the positive trends, the report notes that the current M1 growth rate still lags behind the growth rates of social financing, M2, and nominal GDP, indicating a need for further improvement in economic vitality [3][12]. Summary by Sections Financial Data Analysis - The report discusses the financial data released by the central bank for June 2025, noting that the growth rates of social financing, credit, M2, and M1 align with previous forecasts, with M1 growth exceeding expectations [1][3]. - M1's growth rate for June 2025 is reported at 4.6%, a significant increase from 2.3% in May 2025 [12]. Policy Impact - The new regulations effective from June 1, 2025, mandate timely payments from large enterprises to SMEs, which is expected to convert accounts payable into short-term loans, thus improving liquidity in the market [2][3]. - The report emphasizes that these regulations will help reduce the overall payment delay chain in the economy, enhancing the liquidity of SMEs [2][3]. Future Outlook and Recommendations - The report suggests that the banking sector will benefit from ongoing fiscal efforts, particularly if more resources are directed towards social welfare areas such as education and healthcare [3]. - It recommends a balanced investment strategy focusing on banks with superior free cash flow and excess provisions, indicating a favorable long-term return potential [3][5].