Report Overview - Report Date: July 28, 2025 [1] - Research Team: Fixed Income Research Team [2] - Analysts: Chen Xi, Liu Rui [3] Investment Rating - The report does not mention the industry investment rating. Core Views - Credit bond issuance and net financing have recovered, and trading activity has increased [1][4] - The science and technology innovation bond market is in the second half, with room for spread compression [4] - Credit strategy focuses on balancing coupon and risk, increasing allocation to short - term high - coupon city investment bonds and 3Y/AAA - secondary capital bonds [6] Summary by Directory Policy and Market Trends - On July 18, 2025, the Shenzhen Stock Exchange issued a notice on pilot corporate bond re - issuance and asset - backed securities expansion business, aiming to enhance market depth and optimize financing efficiency [4] - The science and technology innovation bond market is in the second half. Driven by the expansion of underlying assets and policy guidance in the second half of the year, there is still room for spread compression [4] Primary Issuance - From July 21 - 25, the issuance amount of general credit bonds was 351 billion yuan, a week - on - week increase of 70.9 billion yuan; net financing was 128 billion yuan, a week - on - week increase of 83 billion yuan [4] - Among them, the issuance amount of urban investment bonds was 107.7 billion yuan, a week - on - week increase of 10.9 billion yuan; net financing was 29.8 billion yuan, a week - on - week increase of 27.5 billion yuan [4] - The issuance amount of industrial bonds was 243.2 billion yuan, a week - on - week increase of 60.1 billion yuan; net financing was 98.2 billion yuan, a week - on - week increase of 55.8 billion yuan [4] - The weighted issuance term of general credit bonds was 4.21 years, a week - on - week increase of 0.88 years; the weighted issuance interest rate was 1.75%, a week - on - week decrease of 0.09 pct [4] Secondary Trading - The turnover rates of general credit bonds with maturities of less than 1 year and 1 - 3 years increased, while those of other maturities decreased [5] - The turnover rate of bank Tier 2 and perpetual bonds increased overall, with a significant increase in the AAA - level, and a decrease in the AA+ and AA levels [5] Spread Tracking - As of July 25, the average yields of medium - and short - term notes, urban investment bonds, secondary capital bonds, and perpetual bonds with AAA ratings at various maturities were at historically low levels [5] - For urban investment bonds, most spreads widened, except for some 3 - year and 5 - year varieties [5] - For bank Tier 2 and perpetual bonds, the spreads of 3Y and 5Y levels widened, while the 1Y spread narrowed [5] - Regionally, most provincial urban investment bond spreads widened, with Heilongjiang having the largest widening amplitude of 11BP [5] - In the industrial bond sector, most industry spreads narrowed or remained flat, except for the AA - level chemical and AA - level building materials industries [6] Credit Strategy - Balance coupon and risk, and give priority to short - term high - rating varieties. Pay attention to liquidity premium opportunities at the ultra - long end and beware of policy and credit event disturbances [6] - Increase allocation to short - term high - coupon urban investment bonds and industrial bonds with a duration of less than 3 years [6] - Enter the ultra - long - term credit bond market after interest rate adjustments, and focus on the liquidity premium of insurance sub - debt and science and technology innovation bond ETF component bonds [6] - For bank Tier 2 and perpetual bonds, pay attention to changes in the capital market and the overall sentiment of the credit bond allocation end when considering sector games [6]

1. Report Industry Investment Rating No relevant content provided. 2. Core Views of the Report - The 20Y Treasury bond market may not be over yet, with potential for the 20Y - 30Y spread to compress further, and the 20Y Treasury bond may be more cost - effective than the 50Y Treasury bond [2][3][12] - Investors can look for opportunities in some old bonds with certain liquidity and spread compression potential, but the follow - up odds of 230023 may be insufficient [3][13] - In the current bond market environment of extending duration and increasing leverage, there is no need to overly worry about reversal risks before the end of the month, and attention should be paid to the right - side response after sudden event shocks [4][6] 3. Summary by Directory 3.1 This Week's Institutional Behavior Review: Which Bonds Can Be Explored? - **Yield Curve**: Both Treasury and China Development Bank bond yields generally declined. For Treasury bonds, the 1Y yield dropped 4bp, 3Y dropped 3bp, 5Y dropped 4bp, 7Y dropped about 2bp, 10Y changed less than 1bp, 15Y dropped 3bp, and 30Y dropped 1bp. For China Development Bank bonds, the 1Y yield dropped about 1bp, 3Y dropped 2bp, 5Y dropped 3bp, 7Y and 10Y dropped about 2bp, 15Y dropped 5bp, and 30Y remained flat [15] - **Term Spread**: Treasury bond spreads showed deeper inversion and short - end spreads widened, while China Development Bank bond spreads had a differentiated trend with long - end spreads widening [18][19] 3.2 Bond Market Leverage and Funding Conditions - **Leverage Ratio**: The leverage ratio rose to 107.85%. As of June 20, it was about 107.85%, up 0.38pct from last Friday and 0.35pct from this Monday [21] - **Average Daily Repo Turnover**: The average daily turnover of pledged repos was 8.3 trillion yuan, with an average overnight share of 89.71%. The average daily turnover increased compared to last week [28] - **Funding Conditions**: Bank funding supply fluctuated upward. DR007 first rose and then fell, R007 first fell and then rose. 1YFR007 and 5YFR007 both declined [33][34] 3.3 Duration of Medium - and Long - Term Bond Funds - **Median Duration**: The median duration of medium - and long - term bond funds rose to 2.82 years (de - leveraged) and 3.07 years (including leverage). On June 20, the median duration (de - leveraged) was 2.82 years, up 0.04 years from last Friday; the median duration (including leverage) was 3.07 years, up 0.11 years from last Friday [44] - **Duration of Bond Fund Types**: The median duration of interest - rate bond funds (including leverage) remained at 3.69 years, up 0.02 years from last Friday; the median duration of credit bond funds (including leverage) rose to 2.88 years, up 0.15 years from last Friday [47] 3.4 Comparison of Generic Strategies - **Sino - US Yield Spread**: The overall Sino - US yield spread widened. The 1Y spread narrowed by about 2bp, while the 2Y, 3Y, 5Y, 7Y, and 10Y spreads widened [51] - **Implied Tax Rate**: The short - end implied tax rate widened, while the medium - and long - end narrowed [52] 3.5 Changes in Bond Lending Balances On June 20, the lending concentration trends of the active 10Y and 30Y Treasury bonds rose, while those of the second - active 10Y Treasury bond, the active 10Y China Development Bank bond, and the second - active 10Y China Development Bank bond declined [57]

Group 1 - The core viewpoint of the articles indicates a shift towards a more optimistic market outlook following breakthroughs in US-China trade negotiations, leading analysts to revise their annual forecasts positively [1][3] - Analysts from Goldman Sachs, Barclays, and JPMorgan are observing a rapid increase in risk assets, which has driven up corporate bond valuations and attracted a significant influx of borrowers into the market [1][3] - Barclays strategists believe that the recent easing of trade tensions represents a significant and lasting change in the economic backdrop, predicting a further narrowing of spreads in the short term [1][3] Group 2 - Investment-grade bond spreads are projected to narrow to a lower limit of 95 basis points by year-end, a reduction of 25 basis points from March forecasts [3] - For high-yield bonds, Barclays anticipates spreads will narrow to 325 basis points by the end of 2025, a decrease of 75 basis points from previous estimates [3] - Goldman Sachs expects the risk premium for US investment-grade bonds to narrow by about 20 basis points by year-end, while high-yield bonds are expected to narrow by approximately 100 basis points, with both figures remaining relatively stable compared to current levels [3] Group 3 - Recent trading days have seen investment-grade bond spreads narrow by 8 basis points, marking the largest two-day decline since March 2023; junk bond spreads also experienced significant declines, the largest since November 2020 [4]

Core Insights - The offshore bond market for Chinese entities has seen a significant recovery in Q1 2025, with issuance increasing by nearly 70% compared to the end of last year [1][2] - The net financing gap has narrowed dramatically from -21.385 billion USD in Q1 2024 to -5.363 billion USD in Q1 2025 [2] Group 1: Issuance and Financing - In Q1 2025, a total of 301 offshore bonds were issued, amounting to approximately 72.669 billion USD, representing a year-on-year increase of 14.14% in quantity and 67.50% in scale [2] - By bond type, government bonds accounted for about 20.4 billion USD (38%), local government bonds for about 15.4 billion USD (24%), financial bonds for about 7.5 billion USD (12%), real estate bonds for about 4.169 billion USD (6%), and industrial bonds for about 12.6 billion USD (20%) [2] Group 2: Currency and Issuance Methods - The issuance included 87 offshore RMB bonds, 141 USD bonds, 68 HKD bonds, 3 EUR bonds, 1 AUD bond, and 1 JPY bond [3] - The majority of bonds were directly issued (202), with 46 being guaranteed issues, and various combinations of issuance methods were also utilized [3] Group 3: Market Conditions and Costs - Despite the recovery in issuance, financing costs in the offshore market remain higher than in the domestic market, with USD bond issuance rates approximately 3 percentage points higher than domestic credit bonds [4] - The average issuance rate for domestic credit bonds is around 2.2%, while the cost for Chinese USD bonds ranges from 3.6% to 8.5%, with an average of 5.1% [4] Group 4: Market Performance - The overall return rate for Chinese USD bonds in Q1 2025 was 2.49%, with investment-grade and high-yield bonds returning 2.70% and 3.85% respectively [5] - The real estate sector showed the highest return rate at 6.51%, followed by financial and local government bonds at 1.85% and 1.74% respectively [5] Group 5: Future Outlook and Debt Pressure - There remains significant debt repayment pressure in the coming year, particularly in Q3 2025, with repayment needs of 13.193 billion, 11.904 billion, and 24.046 billion USD [11] - The total repayment demand for Chinese offshore bonds in 2025 is projected to be at a three-year high, with 199.2 billion and 163.7 billion USD maturing in 2025 and 2026 respectively [14]

Group 1: Market Operations - The central bank conducted a 382 billion yuan 7-day reverse repurchase operation on March 4, with an operation rate of 1.5%. On the same day, 318.5 billion yuan of reverse repos matured, resulting in a net withdrawal of 280.3 billion yuan [2][3]. - The central bank's recent operations indicate a net withdrawal of funds for two consecutive days in March, which does not hinder the overall liquidity in the market [3]. Group 2: Interest Rates and Bonds - The latest one-year interbank certificates of deposit traded around 1.99%, showing little change from the previous day [5]. - Major interbank bond yields initially declined but then fluctuated and turned upward. For instance, the 1-year government bond yield was at 1.4600%, while the 10-year yield was at 1.7175% [7]. - The recent trends in city investment bonds (AAA) across various maturities indicate changes in yield spreads [8]. Group 3: Global Economic Insights - The Reserve Bank of Australia indicated a stronger case for interest rate cuts, expressing concerns over economic downturn risks and the potential for prolonged tight monetary policy. If inflation persists, rates may remain at 4.1% for an extended period or could be increased [11]. Group 4: Bond Market Events - The National People's Congress Standing Committee will strengthen supervision over government debt management. Additionally, work has begun on issuing 2 trillion yuan of replacement bonds by 2025 [13]. - Longfor Group successfully redeemed the "20 Longfor 04" bond, with a total redemption amount of 2.5 billion yuan [13].