Summary of Conference Call Notes Industry Overview - The discussion primarily revolves around the Chinese economy and its bond market, particularly focusing on interest rates and GDP growth projections. Key Points and Arguments 1. **Economic Growth and Interest Rates** Current economic data indicates weak growth momentum, with potential for further monetary policy easing before year-end. It is anticipated that interest rates may reach new lows, with the 10-year government bond yield possibly falling below 1.6% [1][2][5] 2. **Long-term Economic Goals** According to the 15th Five-Year Plan draft, China's per capita income is expected to reach around $20,000 by 2035, corresponding to an average annual GDP growth rate of approximately 3.5% to 4.36%. This target is considered more realistic when accounting for factors such as population aging [1][2] 3. **Relationship Between Economic Growth and Interest Rates** There is a significant positive correlation between economic growth and interest rates, but the spread between them is variable over time. Historical data shows that in different periods, the relationship has fluctuated, impacting future expectations [3] 4. **Market Sentiment and Bond Market Outlook** The current market is performing strongly, with uncertainties since March being resolved. Favorable factors are accumulating, including further monetary easing and improved supply-demand dynamics, leading to a bullish outlook on the bond market [4][5] 5. **Central Bank's Balancing Act** The central bank must balance supporting economic growth and controlling inflation. Generally, interest rates should be 1.5% to 2.5% below the growth rate of the money supply (M2). Historically, interest rates in China have remained below M2 growth rates [6] 6. **Future Nominal GDP Growth and Interest Rate Projections** The nominal GDP growth rate in China is expected to range between 3% and 6% over the next decade, with corresponding 10-year government bond yields projected to have an upper limit of around 2.4% and a lower limit of approximately 0.6% to 0.7% [2][7] 7. **Implications of Economic Conditions on Bond Yields** If nominal GDP growth declines to around 3%, the lower bound for bond yields could approach 0%. The overall expectation is that the long-term bond yield will fluctuate between 1% and 2.4% in the coming years [8][9] Other Important Insights - The discussion highlights the importance of understanding the dynamics between actual GDP growth and nominal GDP growth, as well as their implications for future interest rates and economic stability [7] - The potential for a significant drop in bond yields is supported by various factors, including central bank actions and market conditions, which may present investment opportunities [5][6]

Report Investment Rating - No investment rating for the industry is provided in the report. Core Views - To reach the level of moderately developed countries by 2035, the official interpretation corresponds to a nominal GDP growth rate of 3.7% or a real GDP growth rate of 4.16% in the next 10 years. The lower - bound requirements for the real GDP growth rate during the 15th and 16th Five - Year Plans are around 4.5% and 4% respectively. The relationship between economic growth and interest rates is positive, but their relative positions are not fixed. Considering inflation, the nominal GDP growth rate in the next 10 years may range from 3% to 6%, and the 10 - year Treasury bond interest rate during the 15th Five - Year Plan may range from 1.2% to 2.4%. Based on the neutral interest rate theory, the 10 - year Treasury bond interest rate center is 1.5%, and the low point can be lower. The economy may still be in a weak recovery this quarter, and the bond market is in a favorable position. With the upcoming implementation of the new regulations on fund sales, it is recommended to seize the opportunity to go long, and interest rates are expected to hit a new low by the end of the year [2]. - There are two ways to view China's economic growth rate in the next decade: reaching a per - capita GDP of $20,000 and doubling the per - capita GDP compared to 2020 (at 2020 constant prices), corresponding to a nominal growth rate of 3.70% and a real growth rate of 4.16% respectively. By back - calculation, the average annual GDP growth rates during the 15th and 16th Five - Year Plans are about 4.5% and 4.0% [2]. - Comparing with overseas countries, interest rates are positively correlated with nominal GDP growth rates, but there is no consistent conclusion on their relative positions and the spread level, which reflects the strength of endogenous demand and the inflation center. Currently, the quarterly average of China's nominal GDP interest rate minus the 10 - year Treasury bond interest rate is about 2%, which is slightly higher than the overseas level this year but neutral compared to overseas history. Combining the golden rule and the neutral interest rate theory, China's actual situation is "real GDP growth rate - 4+1" [2]. - Assuming different inflation scenarios (negative, slightly positive, and normal), the nominal GDP growth rate may range from 3% to 6%. From the lower - bound perspective, if the nominal GDP decreases by 1 percentage point, the interest rate decline should be less than 1 percentage point, with the interest rate lows during the 15th and 16th Five - Year Plans at 1.2% and 0.7% respectively. From the upper - bound perspective, considering the relative position between the nominal GDP high point in 2021 and the interest rate, the interest rate high point is about 2.4% [2]. Summary by Directory 1. Potential Growth Rate and Appropriate Interest Rate Level 1.1 Future Growth Rates in the Next Two Five - Year Plans - Referring to the 2035 long - term goal, two assumptions are considered: reaching a per - capita GDP of $20,000 by 2035, with a 3.90% annual compound growth rate of per - capita nominal GDP in the next 10 years; doubling the per - capita GDP compared to 2020 (at 2020 constant prices), with a 4.36% annual compound growth rate of per - capita real GDP. Considering the population decline, the average annual GDP growth rate requirements by 2035 are a nominal growth rate of 3.70% and a real growth rate of 4.16%. The lower - bound requirements for the average annual real GDP growth rate during the 15th and 16th Five - Year Plans are about 4.5% and 4.0% respectively [6][7][8] 1.2 Relationship between Economy and Interest Rates - **Overseas Comparison**: Static analysis shows a significant positive correlation between GDP growth rates and broad - spectrum interest rates. Dynamically, the centers of nominal GDP growth rates and interest rates are not completely consistent. The relative position between interest rates and nominal GDP depends on monetary policy goals and central bank attitudes, reflecting the strength of endogenous demand and the inflation center. There is no unified conclusion on the appropriate spread between nominal GDP growth rates and long - term interest rates. Different periods in the US, UK, Germany, and Japan have different spreads. In China, long - term interest rates are always lower than the nominal GDP level, showing financial repression, and the spread has been compressing in the long - term but fluctuates annually. In the short - term, the spread is positively correlated with the nominal GDP growth rate [12][13][17] - **Theoretical Level**: Based on the "golden rule" of economic growth theory, the long - term interest rate should be slightly lower than or equal to a country's GDP growth rate. Currently, LPR and general loan interest rates are comparable to the GDP growth rate, while the 10Y Treasury bond interest rate is significantly lower. According to the neutral interest rate theory, emerging market countries' neutral interest rates are about 4 percentage points lower than the GDP growth rate, and nominal interest rates need to add 2% inflation expectations. In China, the long - term interest rate is measured by "real GDP growth rate - 3", indicating that the real GDP growth rate may not reflect the potential growth rate or the inflation expectation is about 1%. Assuming a 4.5% real GDP growth rate in the fourth quarter, the long - term interest rate center can be estimated at 1.5% [22] 1.3 Impact of Declining Economic Growth on Interest Rates - Considering different inflation scenarios (inflation returning to 1 - 2% or higher, 0 - 1%, and remaining negative), the nominal GDP growth rate will change accordingly, and interest rates will fluctuate with the nominal GDP growth rate. In the most optimistic scenario for the bond market during the 15th Five - Year Plan, if the nominal and real GDP growth rate centers decline by 0.5 percentage points, the long - term bond interest rate decline will be less than 0.5 percentage points, and the 10 - year Treasury bond interest rate is unlikely to be lower than 1.2%. In the pessimistic scenario, if the nominal GDP rebounds, and assuming a 6% rebound high point, the 10 - year Treasury bond interest rate high point will be below 2.4%. According to the neutral interest rate theory, if the real GDP growth rate center reaches 4%, the 10 - year Treasury bond interest rate center can gradually decline to 1% [24][25] 2. Central Bank Bond Purchases and Bond Market Interest Rates - From November 3rd to 7th, the yield of the 10Y active Treasury bond fluctuated upward. The 10 - year Treasury bond yield increased by 1.88BP to 1.81%, and the 10 - year national development bond yield increased by 2.35BP to 1.95%. The 1 - year and 10 - year Treasury bond term spread narrowed by 0.31BP to 40.97BP, while the 1 - year and 10 - year national development bond term spread remained at 33.68BP. Various factors such as central bank reverse - repurchase net withdrawal, bond purchase announcements, stock market fluctuations, and policy rumors affected the bond market during the week [27][28][29] 3. Decline in Wealth Management Product Scale - As of November 2nd, the wealth management product scale was 32.52 billion yuan, with a weekly decline of 74.79 million yuan. From October 27th to November 2nd, the new - issue wealth management product scale was 254.44 million yuan. In November, the scale of fixed - income products decreased. By product type, cash - management products decreased by 76 million yuan, fixed - income products decreased by 290 million yuan, and others had different changes. By product risk, low - risk and medium - low - risk products decreased, while medium - risk and medium - high - risk products had small increases. The net - break rate decreased last week. As of November 5th, the 7 - day average annualized yields of money funds and cash - management products were 1.08% and 1.3% respectively [33][34] 4. Decline in Duration and Stable Disagreement Degree - From November 3rd to 7th, the duration of public funds decreased by 0.04 to 2.38 compared to October 31st, with a weekly average of 2.41. The public fund duration disagreement degree on November 7th remained the same as on October 31st at 0.36 [42]

Summary of Conference Call Notes Industry Overview - The notes primarily discuss the bond market and macroeconomic conditions in China, focusing on interest rates, government financing, and corporate profitability [1][3][5]. Key Points and Arguments 1. **Economic Conditions**: June economic data shows significant divergence in supply and demand, with household income growth lagging behind GDP growth. External demand for exports to the U.S. has sharply declined, indicating persistent insufficient total demand [1][3]. 2. **Government Financing**: It is projected that government financing will decrease by over 2 trillion yuan in the second half of 2025, following a peak in social financing growth in July. This decline in financing is expected to contribute to lower interest rates [1][4]. 3. **Corporate Profitability**: Corporate profit margins are under pressure due to declining total demand and trade tensions, resulting in low investment returns. The central bank maintains a moderately loose monetary policy, alleviating concerns about policy tightening [1][5]. 4. **Interest Rate Projections**: The current central level for the 10-year government bond yield is 1.5%, with the current yield at 1.7%. Short-term projections suggest that rates may decline further, potentially falling below 1.5% [1][7]. 5. **Liquidity Management**: The central bank's operations indicate a stable interest rate level around 1.8% during tight liquidity periods. The reasonable range for current operations is estimated between 1.4% and 1.7% [1][8]. 6. **Asset-Liability Matching**: Banks are achieving a yield of approximately 1.5% on mortgages, while the yields on 10-year and ultra-long government bonds are 1.7% and 1.9%, respectively. Insurance companies are also adjusting their guaranteed rates below 2%, making long-term bonds attractive [1][9]. 7. **Redemption Pressure**: Current redemption pressure is primarily preventive and not indicative of a trend, similar to the situation in August 2024. The market is not expected to experience significant volatility due to this preventive redemption [2][10]. 8. **Market Outlook**: The third quarter is expected to see increased volatility in funding rates, but the overall range will remain between OMO reductions of 20 basis points and increases of 20 basis points, indicating a more accommodative environment compared to the second quarter [2][11]. Additional Important Content - The notes emphasize the lack of significant counter-cyclical demand policies to address the ongoing economic challenges, which could further impact total demand and interest rates [1][3]. - The analysis suggests that the bond market is not at risk of a trend reversal to bearish conditions, as the fundamental factors driving interest rates downward remain unchanged [3].