Group 1 - The credit market in the first half of 2025 can be divided into four phases: a market correction, a recovery phase, a volatile market, and a continuation of market fluctuations with favorable supply-demand dynamics for credit [2][13][28] - The supply side in 2025 shows structural changes, including continued low supply of local government bonds, increasing supply of industrial bonds, and a steady issuance of technology innovation bonds [2][28] - On the demand side, public funds and other products are the main buyers of credit bonds, indicating strong market interest [2][28] Group 2 - Looking ahead to the second half of 2025, supply is expected to remain stable, and the anticipated growth in bank wealth management products will support market demand for credit [3][30] - The expansion of benchmark credit bond ETFs and technology innovation bond ETFs is expected to continue in the third quarter, contributing to market dynamics despite some ongoing debates [3][34] - The liquidity environment remains favorable for the bond market, with a focus on selective paths for credit spread compression, suggesting that concerns about significant adjustments may not be immediate [3][30]

Report Information - Report Title: Credit Investment Methodology Series IV: The Logic of Credit Bond Supply and Its Significance for Credit Strategies [3] - Report Date: July 29, 2025 [2] - Analysts: Liu Lu, Zhang Junrui [3] Industry Investment Rating - Not provided in the given content Core Viewpoints - Credit bond supply is mainly influenced by corporate debt - financing demand, loan - bond spread, and regulatory policy differences between bond and loan financing. Credit bond supply has obvious seasonality and its quantity - price relationship is complex, with significant implications for credit strategies [8][9]. - In normal times, price dominates quantity, but major regulatory policy changes can lead to supply changes that dominate yield and credit spread trends. This year, H2 regulatory policies are favorable for credit bond supply but unfavorable for urban investment bond supply, potentially widening credit spreads and making urban investment bonds outperform industrial bonds [9]. Summary by Related Catalogs Factors Affecting Credit Bond Supply - Corporate Debt - Financing Demand: Credit bonds are a form of corporate debt financing, and corporate debt - financing growth is a leading indicator of economic growth, leading GDP growth and corporate employment demand by about 9 months. The balance growth rates of loans and credit bonds have correlation coefficients of 0.71 and 0.86 with corporate debt - financing balance growth, respectively [8][11]. - Loan - Bond Spread: Credit bond net financing is positively correlated with the loan - bond spread (general loan rate - 3YAA medium - term note rate). Since Q2 2011, the correlation coefficients between the year - on - year change of the loan - bond spread and the year - on - year change of credit bond net financing, industrial bond net financing, and urban investment bond net financing are 0.48, 0.55, and 0.07 respectively; since 2021, they are 0.72, 0.91, and - 0.34 respectively [12]. - Regulatory Policy Differences: When credit bond financing regulatory policies are relaxed or loan financing regulatory policies are tightened, companies will issue more credit bonds. For example, in 2012, the tightening of urban investment loans and the relaxation of urban investment bond review led to an increase in the ratio of new credit bonds to new loans [8][18]. - Seasonality: Quarterly, credit bond net financing decreases quarter by quarter. From 2019 - 2024, the median proportion of quarterly credit bond net financing to annual net financing is 40%, 23%, 19%, and 7% respectively. Monthly, due to bond issuance review requirements for financial reports and the end - of - quarter loan impulse, April has a significantly higher credit bond financing proportion than corporate loan financing, while May, September, and December have significantly lower credit bond financing proportions [8][20][27]. Relationship between Credit Bond Quantity and Price - Normal Relationship: Credit bond yield is negatively correlated with credit bond net financing. Rolling 12 - month credit bond net financing and credit bond interest rates are mostly negatively correlated, and since 2020, interest rates have a certain leading nature. Credit spread is negatively correlated with the ratio of credit bond net financing to government bond net financing, with the former leading the latter by about 3 months. After removing the linear trend, the correlation coefficient between the 3 - month leading credit spread and the ratio of credit bond net financing to government bond net financing since 2019 is - 0.39, and since November 2022, it has reached - 0.51 [31][32]. - Reverse Influence: When regulatory policies are strong, credit bond supply can affect spreads. For example, from February - June 2020, increased credit bond supply led to wider credit spreads the next month. Since 2021, regulatory policies have restricted urban investment bond issuance, narrowing the urban investment - industrial spread and urban investment bond rating spread [33]. Implications for Credit Strategies - Policy Focus: Analyze regulatory policy - driven credit bond supply changes. This year, H2 regulatory policies are favorable for credit bond supply but unfavorable for urban investment bond supply, so credit spreads may widen, and urban investment bonds may outperform industrial bonds [9][41]. - Supply Analysis: This year, H2 regulatory policies are favorable for corporate bond issuance, while urban investment bond financing regulatory policies may tighten. Government bond net financing is expected to decrease by 1.9 trillion yuan compared to H2 2024, while credit bond net financing may increase year - on - year [44][45].

Group 1 - The report indicates that the stock market's strength has led to short-term adjustment pressure on the bond market, resulting in a passive narrowing of credit spreads, particularly in short-duration bonds, with 1-year credit spreads across various ratings narrowing by 5-7 basis points [1][4] - The report highlights that the overall turnover rate of credit bonds has decreased from 2.36% to 2.21%, reflecting a reduction in market trading activity, with the weighted average transaction duration slightly increasing from 2.8 years to 2.9 years [2] - Fund managers are maintaining an allocation to credit bonds, although the intensity has weakened, with a shift towards shorter-duration bonds, while insurance companies have increased their net purchases of long-duration credit bonds [3] Group 2 - The report suggests that despite the stock market's upward pressure on the bond market, there remains a potential for short-term volatility, and it recommends a strategy of selectively increasing positions during adjustments rather than aggressively chasing gains [4] - The report notes that the average yield of credit bonds has generally increased, with the 3-year and 5-year credit bonds showing significant upward movement, particularly in lower-rated municipal bonds [10][17] - The report identifies specific sectors such as steel and coal that may benefit from the "anti-involution" policy, indicating potential opportunities in industry bonds [4]

Summary of Key Points from Conference Call Records Industry Overview - The records primarily focus on the **bond market** outlook for June 2025, with insights into **monetary policy**, **credit bonds**, and specific sectors such as **real estate** and **coal** industries. Core Insights and Arguments 1. **Bond Market Outlook for June 2025**: The bond market is expected to continue the volatile trend observed since May, primarily due to uncertainties in tariff negotiations and variable fundamental data. The trading range for the 10-year government bond is anticipated to be between **1.6% and 1.7%** [2][3][11]. 2. **Monetary Policy Shift**: The People's Bank of China has shifted its monetary policy focus from preventing capital turnover to stabilizing growth, creating a relatively friendly monetary environment. The dual interest rate cuts in May were in line with expectations, but the positive effects were quickly absorbed by the market [3][8]. 3. **Seasonal Factors**: Historical data from 2019 to 2024 indicates that the 10-year government bond typically experiences limited volatility in June, with fluctuations generally within **10 basis points**. Seasonal factors and government bond issuance are expected to influence liquidity significantly [4][6]. 4. **Liquidity Concerns**: The liquidity situation in June is complicated by a **1.5 trillion yuan** net financing issuance and **4 trillion yuan** in maturing certificates of deposit, raising concerns about short-term volatility despite an overall favorable trend [7][8]. 5. **Credit Bonds**: The short-end credit spread has limited compression potential, while three-year varieties still have room for compression. Attention is drawn to **2A-rated** credit bonds for investment opportunities [6][12]. 6. **Real Estate Sector**: The real estate industry is in a bottoming phase, with a focus on the impact of policy relaxations in core first-tier cities. Recommendations include investing in safe-zone state-owned enterprise real estate bonds and high-cost performance **2A/2A+** rated bonds [16][17]. 7. **Coal Industry**: The coal sector has seen a decline in demand since 2024, leading to price fluctuations. The overall profitability has decreased, and cash flow from operating activities has contracted [19][21]. 8. **Steel Industry**: The steel sector faces severe oversupply issues, with a slight recovery in demand due to export boosts. However, domestic demand remains weak, leading to continued pressure on prices and profitability [20][21]. Additional Important Content 1. **Investment Strategies**: The second half of 2025 may present a significant investment window, with potential new monetary policies expected to be announced in July. Investors are advised to prepare for this period despite a lackluster June [5][11]. 2. **Credit Strategy**: The credit market shows varying performance across different maturities and ratings, with a focus on optimizing investment portfolios based on these dynamics [12][14]. 3. **Market Dynamics**: The convertible bond market has experienced a V-shaped recovery, indicating strong buying power despite the unclear upward trend in the equity market [22][24]. 4. **Risk Assessment**: The overall risk in the equity market is considered manageable, with liquidity remaining ample and policy expectations high, which supports the convertible bond market [23][30]. This summary encapsulates the key points from the conference call records, providing a comprehensive overview of the current state and outlook of the bond market and related sectors.

Core Viewpoints - The article discusses the current concerns of investors regarding macro interest rates, credit, and convertible bonds, and provides insights on these topics [2][12]. Group 1: Bond Market Dynamics - Bond interest rates are positively correlated with domestic demand and negatively correlated with external demand, indicating that despite unexpected tariff changes, the core contradiction in the bond market remains focused on domestic demand [3][14]. - The liquidity environment is improving gradually, with funding rates decreasing from around 1.8% to a range of 1.4%-1.6%, suggesting that negative carry is becoming a thing of the past [4][19]. - The long-end interest rates, particularly the 10-year government bond, require a decline in deposit rates to facilitate further downward movement [20][21]. Group 2: Macro-Prudential Support - The People's Bank of China is focusing on macro-prudential measures to support the healthy development of the bond market, which includes monitoring risks and enhancing regulatory coordination [5][24]. - The current credit environment shows weak growth in broad credit, with local government bonds expanding, indicating that investors may face more interest rate risks [25]. Group 3: Credit Bond Market - The credit bond market is expected to see a shift towards stronger credit performance and weaker interest rates, driven by a decrease in deposit rates and increased allocation towards credit bonds by wealth management products [7][28]. - The performance of credit strategies is likely to favor short to medium-term bonds, particularly those with a maturity of 2-3 years, with a ranking of value from city investment bonds to industry bonds [8][30]. Group 4: Investment Opportunities - The recent surge in sci-tech bonds presents unique investment opportunities, especially with new issuers and private sector participation, although investors should remain cautious of potential credit risks [10][32]. - The recommendation for a near-term convertible bond strategy is based on the increasing market focus on bonds with shorter maturities, particularly those with a strong repayment capability [11][34].