Group 1 - The restoration of VAT on newly issued government bonds, local government bonds, and financial bonds starting from August 8 aims to enhance fiscal sustainability and prevent financial risks while promoting market efficiency and the development of the bond market [1][2]. - This policy adjustment is expected to improve the transparency and compliance of bond issuance and trading, reducing speculative arbitrage and enhancing the risk-return matching in the market [1][2]. - The tax treatment of different bond types will become more consistent, leading to improved pricing efficiency and resource allocation in the bond market, ultimately directing funds towards high-quality development sectors such as technology innovation and green economy [2][3]. Group 2 - The implementation of the VAT policy will adopt a "new and old distinction," allowing existing bonds to continue enjoying the previous tax exemption until maturity, which aims to avoid drastic impacts on the current bond market while gradually moving towards a more transparent and efficient development phase [3]. - The adjustment aligns China's bond market tax arrangements more closely with international practices, enhancing market comparability and institutional transparency, which is crucial for high-level financial opening [2][3]. - Future reforms may include improvements in tax administration details, market expectation guidance, and the development of supporting systems such as credit rating and investor protection, contributing to the sustainable and high-quality development of China's bond market [3].

Core Viewpoint - The restoration of value-added tax (VAT) on interest income from newly issued government bonds, local government bonds, and financial bonds is a significant adjustment to China's bond market tax system, promoting fiscal sustainability, reducing financial risks, and enhancing market efficiency [2][3][4] Group 1: Fiscal Sustainability - The restoration of VAT on bond interest income enhances the normative and sustainable nature of the fiscal system, especially in the context of needing to boost domestic demand and increase fiscal spending to stabilize growth [2] - This policy aids in strengthening fiscal regulation capabilities [2] Group 2: Financial Risk Reduction - The previous exemption from VAT led to speculative arbitrage by financial institutions, resulting in irrational investment preferences and increased vulnerability in the financial system [2] - The reintroduction of VAT compresses the space for artificial arbitrage, improving transparency and compliance in bond issuance and trading [2][3] Group 3: Market Efficiency and Reform - The restoration of VAT aligns the tax treatment of different bond types, enhancing pricing efficiency and resource allocation in the bond market [3] - Financial institutions will focus more on credit quality, risk-return ratios, and long-term value, directing funds towards high-quality development areas such as technological innovation and green economy [3] - The adjustment brings China's bond market closer to international practices, enhancing comparability and transparency, and promoting high-level financial openness [3][4] Group 4: Implementation and Transition - The policy adopts a "new and old distinction," allowing existing bonds to continue enjoying the previous tax exemption until maturity, thus avoiding severe shocks to the current bond market while gradually moving towards a more transparent and efficient development phase [4] - Future reforms can further refine tax collection details, strengthen market expectation guidance, and advance supporting systems like credit ratings and investor protection [4]

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - The inclusion of 9 credit - bond ETFs in the general pledge - style repurchase collateral list is a significant institutional breakthrough in the bond ETF pledge mechanism, which may enhance the market recognition and investment enthusiasm for credit - bond ETFs, improve the liquidity of the credit - bond market, and optimize the bond market ecosystem [3][8]. - The bond market shows a volatile trend. The issuance of credit bonds has warmed up, and the trading activity in the secondary market has increased. Bond yields show a differentiated trend, with credit spreads generally widening and rating spreads generally narrowing [6][7][35]. - The manufacturing PMI in May showed marginal improvement, but there was an imbalance in supply - demand recovery. Industrial enterprise profits continued to recover [12][13]. 3. Summary by Directory Market Hotspots - On May 29, 2025, China Settlement approved 9 credit - bond ETFs to be included in the general pledge - style repurchase collateral list. As of June 3, the scale of these 9 products exceeded 80 billion yuan, nearly 2.5 times the scale at the beginning of the year. Their secondary - market trading is active [3][8]. - The inclusion of credit - bond ETFs in the collateral range can make up for their shortcomings in liquidity management and financing support, transform them from single - function tools to composite products, and is expected to attract more long - term funds and promote the expansion of the credit - bond market [9][10]. - Since the beginning of this year, bond - type ETFs have expanded against the trend. The inclusion of credit - bond ETFs in the collateral system is a positive factor for the market and may be a key variable for the next - round expansion of credit - bond ETFs [10]. Macroeconomic Data - In May, the manufacturing PMI rose 0.5 percentage points to 49.5%, still in the contraction range but with marginal improvement. The production index returned above the boom - bust line, while the new - order index remained below it, indicating an imbalance in supply - demand recovery. The Caixin China Manufacturing PMI in May dropped to 48.3%, the lowest since October 2022 [12][13]. - From January to April, the profits of industrial enterprises above the designated size increased by 1.4% year - on - year, 0.6 percentage points faster than from January to March. In April, the profits increased by 3.0% year - on - year, 0.4 percentage points higher than in March [13]. Money Market - Last week, the central bank net - injected 656.6 billion yuan through open - market operations. The overnight and one - month pledged - style repurchase rates decreased by 8bp and 6bp respectively, while other term rates increased by 5 - 8bp. The 3 - month Shibor remained unchanged, and the 1 - year Shibor increased by 1bp, with the spread widening to 5bp [5][16]. Primary Market of Credit Bonds - Last week, the issuance of credit bonds warmed up, with a scale of 286.088 billion yuan, an increase of 44.777 billion yuan from the previous period. The cancellation of issuance also increased by 772 million yuan [21]. - By industry, the infrastructure investment and financing industry's issuance scale was 67.074 billion yuan, an increase of 28.569 billion yuan. The industrial bond issuance scale was 157.159 billion yuan, a decrease of 5.541 billion yuan. Most industries in industrial bonds showed net financing outflows [6][21]. - In terms of issuance costs, the average issuance rates of most bonds with different terms and ratings increased by 2 - 8bp, except for the 1 - year bonds of all grades, whose average issuance rates decreased by 12 - 15bp [21][32]. Secondary Market of Credit Bonds - Last week, the secondary - market trading volume of bonds was 8.655833 trillion yuan, and the average daily trading volume increased by 49.422 billion yuan to 173.1167 billion yuan, indicating increased trading activity [35][36]. - The yields of treasury bonds and policy - bank bonds showed a differentiated trend. The 10 - year treasury bond yield decreased by 5bp to 1.67%. Credit - bond yields fluctuated, with changes ranging from 1 - 10bp [35]. - Credit spreads generally widened by 1 - 12bp, and rating spreads generally narrowed by 1 - 10bp [35].