Summary of Conference Call Notes Industry Overview - The credit bond market is currently experiencing a cautious sentiment, with limited compression in credit bond yield spreads, indicating that market participants are still pricing in credit risks [1][2] - The team holds a bearish outlook on future interest rate trends, although recent economic and financial data, including Q3 GDP figures, have had a limited impact on the bond market's trajectory [1][3] Key Insights and Arguments - Financial institutions are facing increasing pressure on credit supply, as evidenced by the rising loan-to-deposit ratio, which has increased from approximately 43.3 trillion yuan in January to nearly 60 trillion yuan in September [3] - Insurance companies showed weak performance in credit bond purchases earlier this year, particularly in the first half, but there was a recovery in net buying during Q3. Overall, insurance companies did not reduce their total bond purchases, although they bought fewer government and policy bank bonds while increasing local government bond purchases [4] - The current spread between perpetual bonds and other bonds has narrowed to around 5 basis points. If overall interest rates continue to decline, perpetual bonds may still present trading opportunities [5] Investment Recommendations - For ultra-long credit bonds, it is recommended to participate with a focus on allocation, as their coupon yields remain attractive. It is expected that yields will decline in the future, presenting a favorable risk-reward scenario [5] - In Q4, short-term credit bonds with maturities of around two years are expected to perform normally, with yields likely to decrease slightly as overall interest rates decline. However, the decline in yields for longer maturities, such as 10 or 30 years, is expected to be limited [6] - The investment strategy for Q4 should prioritize coupon income, while also allowing for participation in ultra-long duration strategies, but with controlled trading volumes to ensure stability and avoid excessive volatility [6] Additional Important Points - The overall bond purchasing behavior of insurance companies has been influenced by the strong performance of the stock market, which has alleviated some of the asset scarcity issues faced by these institutions [4] - The credit bond market has entered a period of fluctuation, with recent yield movements reflecting a recovery from previous increases, although the overall compression in yield spreads remains modest [2]

Group 1 - The Chinese government will resume the collection of value-added tax (VAT) on interest income from newly issued government bonds, local government bonds, and financial bonds starting from August 8, 2023, while existing bonds issued before this date will remain exempt until maturity [1][2] - This policy change is expected to increase the new issuance rates of government bonds, leading to higher interest expenses for the government, while simultaneously boosting VAT revenue [2][3] - The removal of tax exemptions will fundamentally alter the after-tax yield calculations for large institutional investors, such as banks and insurance companies, who previously relied on tax-free returns when investing in government bonds [4][5] Group 2 - The shift in tax policy indicates a gradual weakening of implicit guarantees and special privileges associated with Chinese government bonds, suggesting a move towards a more market-oriented and standardized bond market [5][6] - The restoration of VAT on bond interest will compel investors to focus more on the actual credit risks and fiscal health of bond issuers, particularly local governments, thus enhancing the credit risk pricing logic in the market [6][7] - This change is anticipated to reduce the "crowding out" effect on private investments, allowing market funds to be allocated more equitably between government projects and the private sector [7] Group 3 - In the U.S., the resignation of Federal Reserve Board member Adriana Kugler is set to take effect on August 8, 2023, with speculation that former President Trump may nominate a potential future chair to fill the vacancy [1][8] - The recent U.S. non-farm payroll data showed a significant downward revision, with July's job growth at only 73,000, far below market expectations, and the previous two months' data also revised down substantially [8][9] - Trump's reaction to the disappointing employment data indicates a desire to exert more control over the Federal Reserve, as he perceives the current economic conditions as an opportunity to influence monetary policy ahead of critical trade negotiations [10][11]