Report Industry Investment Rating No relevant content provided. Core View of the Report - Exchange rate appreciation has limited impact on the bond market, mainly affecting certificates of deposit. As funds remain loose and institutional indicator pressure eases after the New Year, the bond market is expected to continue its repair from short - to long - term. The 10 - year Treasury bond is expected to hit a new low in the first quarter or the first half of next year [4][17]. Summary by Related Aspects Bond Market Performance This Week - The bond market continued to fluctuate and slightly recover this week, with the short - end still stronger than the long - end. The yields of 10 - year and 30 - year Treasury bonds changed slightly by 0.7bps and - 0.2bps to 1.84% and 2.22% respectively compared with last week. The yields of 3 - year and 5 - year AAA - secondary capital bonds rose slightly by 1.4bps and 1bps. The 1 - year Treasury bond yield dropped significantly by 6.8bps to 1.29%, and the 1 - year AAA certificate of deposit remained basically flat at 1.64% [1][7]. Impact of Exchange Rate Appreciation on the Bond Market Impact on Foreign Investment in Bonds - Exchange rate appreciation mainly has a negative impact on certificates of deposit, but the impact is in the second half and is expected to gradually subside after the first quarter of next year. Due to the continuous inversion of Chinese and foreign interest rates and the impact of forward exchange rates, the correlation between foreign investment in Treasury bonds and policy - financial bonds and interest rates has significantly decreased in recent years. During the recent exchange rate appreciation, foreign investors did not increase their allocation of government bonds. The scale of foreign holdings of Treasury bonds and policy - financial bonds decreased from 2.92 trillion yuan in April to 2.75 trillion yuan in November. Foreign investment in domestic bonds has mainly been reflected in certificates of deposit in recent years. As the RMB exchange rate appreciates, the forward premium of the exchange rate has decreased, and foreign investors have continued to withdraw from certificates of deposit. The scale of foreign - held certificates of deposit decreased from 1.30 trillion yuan in April to 0.69 trillion yuan in November. If the current downward trend continues, the impact on certificates of deposit will gradually decrease [1][7]. Impact on Corporate Settlement and Sale of Foreign Exchange - Exchange rate appreciation changes corporate willingness to settle and sell foreign exchange, leading to an increase in net settlement volume, which in turn increases money creation and has a certain impact on funds. However, the impact is not large due to the limited scale. Exchange rate appreciation increases the settlement ratio of export enterprises and reduces the sale ratio of import enterprises, leading to an increase in the settlement - sale surplus. The 6 - month moving average of the settlement - sale surplus has increased from about $10 billion last year to $47.7 billion currently. Commercial bank settlement generates a similar money - creation function, increasing the demand for RMB funds and impacting liquidity. But the scale is limited. Assuming a monthly settlement - sale surplus of $50 billion, it corresponds to about 350 billion yuan in RMB, consuming about 40 billion yuan of base money [2][8]. Impact on Monetary Policy - China's monetary policy is mainly domestic - oriented, and the impact of exchange rate appreciation may be limited. The central bank is expected to maintain a loose monetary environment. Given the weak financing demand, loose liquidity is expected to continue. Even if the financing demand increases seasonally at the end of the year or the demand for foreign exchange settlement increases, the central bank may increase capital injection through various means, including reserve requirement ratio cuts, to maintain a generally loose capital environment [3][12]. Outlook for the Bond Market - With the continuous loosening of funds and the alleviation of institutional indicator pressure after the New Year, there is room for further decline in the yields of certificates of deposit and short - term credit bonds. The yield of 1 - year AAA certificates of deposit is expected to fall to around 1.5%. The decline in short - term yields will enhance the relative value of long - term bonds. The issuance duration of government bonds may shorten. Banks' indicator pressure may ease around the end of the year, and the relatively high long - term bond yields will increase the allocation value for institutions such as insurance companies. As trading institutions reduce their positions, short - selling pressure will decrease, and both short - term and long - term bonds are expected to have investment opportunities [4][17].

Core Viewpoint - The recent continuous rebound in M1 growth is primarily driven by significant increases in both corporate and household demand deposits, indicating a shift in asset allocation in a low interest rate environment [2][3][4]. Group 1: M1 Growth Analysis - In July, M1 year-on-year growth reached 5.6%, continuing the upward trend since the fourth quarter of last year [2]. - The rebound in M1 growth is largely attributed to a sharp increase in corporate and household demand deposits, with corporate demand deposits recovering significantly since June [3]. - The rapid issuance of government bonds, exceeding 1.88 trillion yuan, has contributed to the recovery of corporate demand deposits as these funds are held in the accounts of repayment entities [3]. Group 2: Factors Influencing M1 Growth - The decline in interest rates and the low base effect from last year are key factors driving the current M1 growth, differing from previous cycles that were more influenced by the real estate sector [4]. - The cancellation of manual interest subsidies last year has created a low base effect that will persist until October this year, after which M1 growth will depend more on improvements in the economic fundamentals [4]. - The current policy support is expected to stabilize confidence and improve corporate cash flow, but its effectiveness in stimulating real investment and consumption remains to be seen [4].