Core Viewpoint - The issuance of up to $4 billion in sovereign bonds by the Chinese government in Hong Kong is not merely a borrowing action but a strategic move to rewrite the rules of the financial system and test systemic pressures against the backdrop of international relations and financial dynamics [1] Group 1: Strategic Implications - The issuance represents a significant step in establishing a "China Dollar Curve," allowing for a new pricing framework for Chinese dollar-denominated bonds, which could reduce reliance on U.S. Treasury benchmarks [1] - By issuing bonds with a strong credit rating and no default history, China is positioning itself as a credible alternative in the global fixed income market, potentially altering the demand dynamics for U.S. Treasuries [1][5] Group 2: Financial Mechanics - The Chinese government holds $3.2 trillion in foreign reserves, with approximately $1 trillion in long-term U.S. Treasuries, and the issuance of short-term dollar bonds is a strategy to manage interest rate risk by introducing "negative duration" on the liability side [3] - The raised funds will be directed towards countries in need of foreign currency, creating a closed loop of "dollar assets—commodities—RMB settlement," enhancing the offshore RMB's liquidity and credit premium [3] Group 3: Geopolitical Context - The ongoing weaponization of currencies, particularly in the context of the Russia-Ukraine conflict, has led China to establish a high-credit, traceable record of transactions in the dollar system, which could serve as a reference point for international investors in extreme scenarios [4] - The issuance sends a strong signal of confidence in China's growth and currency management, contrasting with the rising fiscal deficit in the U.S., which could reshape the perception of safe assets in the long term [5] Group 4: Market Dynamics - The Federal Reserve's decision to increase the balance sheet reduction to $95 billion per month has created a structural shortage of offshore dollars, making the issuance of dollar bonds a strategic move to "repatriate" offshore dollars without depleting foreign reserves [6] - This action could mitigate the risks of currency depreciation among emerging markets due to dollar shortages, reinforcing the narrative of the RMB as a regional stabilizing anchor [6]

今天分享的是：：2025美元流动性专题之二：美元流动性的三维度观测报告 联邦基金市场是美元流动性的基石，在充裕准备金框架下，"量"成为核心观测指标。准备金总量直接反映银行体系基础流动性 充裕程度，其变动受美联储公开市场操作和负债结构变化影响。2022年6月开启的新一轮缩表以来，美联储总资产规模趋降，但 逆回购工具发挥了"缓冲垫"作用，准备金未大幅抽离。2025年9月，准备金总量达3.2万亿美元，占银行总资产比重12.9%，处于 合理区间，联邦基金利率也维持在政策区间内。贴现窗口作为常备流动性工具，因"污名化效应"日常使用较少，仅在市场危机 时大规模动用。 回购市场是美元流动性的重要枢纽，担保隔夜融资利率（SOFR）是关键价格基准。SOFR通常在隔夜逆回购利率与准备金余额 利率间波动，其与隔夜逆回购利率的利差变化可反映流动性松紧。2025年9月以来，该利差中枢升至16BP，显示回购市场流动性 收紧。一级交易商作为核心做市主体，其国债逆回购规模与准备金余额的比值可反映市场资金供给状况，2025年9月该比值为 0.88，虽呈上行趋势，但距离危机时期水平仍有差距。2021年设立的常备回购便利工具，为市场提供了"利率天 ...

Core Insights - The report constructs a "3×3" matrix for analyzing USD liquidity, focusing on the federal funds market, repo market, and offshore USD market, while monitoring liquidity changes across scale, price, and policy dimensions [1][6][8] - Current structural pressures on USD liquidity are attributed to the Federal Reserve's balance sheet reduction and large-scale debt issuance, but the likelihood of a comprehensive liquidity crisis remains low under non-extreme conditions due to robust policy tools [1][3][6] Federal Funds Market - The federal funds market is the cornerstone of USD liquidity, with a focus on scale indicators. The Fed's balance sheet reduction since June 2022 has decreased total assets to 74.1% of the June 2022 level, but reverse repo tools (RRP) have provided a buffer, maintaining reserves at $3.2 trillion as of September 2025, which is 12.9% of total bank assets [1][13] - The effective federal funds rate (EFFR) remains stable within the interest on reserves balance (IORB) of 4.15% and ON RRP of 4.0%, with discount window usage being restrained due to stigma effects [1][17] Repo Market - The repo market is a critical liquidity hub, with the secured overnight financing rate (SOFR) and primary dealer market-making capabilities as core observation points. Since September 2025, SOFR has fluctuated around the upper limit of the rate corridor, with a spread to ON RRP increasing to 16 basis points, indicating marginal tightening [2][20] - The ratio of primary dealer reverse repos to reserves has risen to 0.88, reflecting ongoing pressure, although it remains below crisis levels [2][20] Offshore USD Market - The offshore USD market has shown characteristics of "bondification" and "derivatization," with currency swap basis as a key observation indicator. Since 2025, the cross-currency basis for euro/USD and yen/USD has narrowed, indicating maintained offshore liquidity [2][27] - The use of central bank currency swaps and FIMA repo facilities during crises serves as significant signals of systemic liquidity pressure, with both tools available to address liquidity needs across various market levels [2][35][38] Future Outlook - Future USD liquidity faces multiple contraction pressures, including ongoing balance sheet reduction by the Fed and increased Treasury issuance, which may lead reserves to drop below $3 trillion by September 2025, approaching a critical threshold of $2.7 trillion [3][6] - The Fed has established a multi-layered liquidity management toolset, which includes the discount window, SRF, FIMA repo, and central bank currency swaps, to mitigate systemic risks under non-extreme conditions [3][6]

Group 1: RMB Exchange Rate Trends - Since August 25, 2025, the RMB has experienced a smooth appreciation trend, ending a previous three-week narrow fluctuation[6] - The RMB exchange rate is expected to remain above 7 for the year, with significant appreciation dependent on the stability of the Chinese economy and high-quality development[3] - The RMB has a considerable "rebound" potential, contingent on the pace of the decline in the US-China interest rate differential[7] Group 2: Market Influences - Recent adjustments in the RMB central parity rate are primarily driven by a weakening US dollar, aligning with normal pricing mechanisms[17] - The RMB's relative weakness against the US dollar reflects the impact of the second round of US-China trade disputes, with a maximum depreciation of 9.2% noted[9] - The RMB's exchange rate is closely related to the US-China interest rate differential, with a significant correlation observed since 2022[14] Group 3: Capital Flow Dynamics - Positive changes in cross-border capital flows are noted, including a sustained high trade surplus and a slowdown in China's outward direct investment[43] - The average monthly trade surplus in foreign exchange payments increased from $33.9 billion to $70.7 billion, indicating a doubling effect[27] - The shift from "currency hoarding" to "currency settlement" among foreign trade enterprises has catalyzed RMB appreciation, with the critical threshold around 7[30] Group 4: Risk Factors - Risks include the potential underperformance of growth stabilization policies, deterioration in US-China trade negotiations, and unexpected resilience in the US economy[2] - The RMB's appreciation may face challenges if the market's expectations for its stability do not solidify, particularly around the 7 mark[41]

Core Insights - The article celebrates the 75th anniversary of "China Finance" magazine, highlighting its role in documenting and participating in the evolution of China's financial sector [1] - The concept of social financing scale (社融) is introduced as a unique financial macro-monitoring and regulatory indicator in China, established through collaborative efforts over five years [2][3] - The article discusses the regional disparities in social financing, noting that the share of social financing increment in central and western regions has increased significantly from 38.6% in 2015 to 43.6% in 2024, indicating a shift in financial resource allocation [4] Social Financing Scale - Social financing scale is recognized as a significant indicator for macroeconomic monitoring and has been included in central economic work reports for 15 consecutive years [2] - The theoretical foundation and international experiences related to social financing are explored, emphasizing its relevance to China's financial policy innovations [3] Regional Development - The article emphasizes the regional structural characteristics of social financing, reflecting economic disparities and development trends across China [4] - The increase in social financing in central and western regions suggests enhanced financial support for these areas, while the northeastern region has seen a decline in its share [4] Financial Reform - The article discusses the need for coordinated reforms in interest rates, exchange rates, and capital account openness as essential conditions for the internationalization of the Renminbi [5][6] - It highlights that capital account openness in China is a managed process rather than a free flow of capital, with a focus on optimizing the path to reduce risks [6] Currency and Virtual Currency - The article argues that virtual currencies, such as Bitcoin, lack the essential characteristics of money, primarily due to the absence of state credit support [8][9] - It points out the volatility of virtual currencies, which undermines their function as a stable medium of exchange, contrasting them with state-backed currencies [10]

- The report constructs a quantitative timing indicator for the US Dollar Index by integrating five key factors: US economic fundamentals, US interest rate advantage, USD long-short position differences, global financial stress, and US fiscal deficit[1][16][22] - The construction process involves detrending, denoising, and standardizing these factors, followed by equal-weighted synthesis to form the final timing indicator[2][25] - The timing indicator is effective in predicting the US Dollar Index's upward trend when it is above the zero axis and marginally rising, with a success rate of 74.1% in such conditions[2][29][35] Model and Factor Construction 1. **Model Name**: US Dollar Timing Indicator - **Construction Idea**: Integrate multiple economic and financial factors to predict the US Dollar Index's movements[1][16] - **Construction Process**: 1. Identify five key factors influencing USD demand: US economic fundamentals, US interest rate advantage, USD long-short position differences, global financial stress, and US fiscal deficit[1][16][22] 2. Detrend the factors with long-term trends using rolling HP filter[25] 3. Denoise and standardize the factors[25] 4. Combine the factors with equal weights to form the final timing indicator[25] 5. The indicator uses zero as the historical fluctuation center, indicating a tendency for the USD Index to rise when above zero[25] - **Evaluation**: The indicator effectively predicts the USD Index's upward trend when above zero and marginally rising, with a 74.1% success rate[2][29][35] Model Backtesting Results 1. **US Dollar Timing Indicator** - **0 Axis Above + Marginally Rising**: 74.1% probability of USD Index rising next month[29][35] - **0 Axis Above + Marginally Falling**: 48.0% probability of USD Index rising next month[35] - **0 Axis Below + Marginally Rising**: 35.4% probability of USD Index rising next month[35] - **0 Axis Below + Marginally Falling**: 49.0% probability of USD Index rising next month[35] - **Overall Sample**: 52.3% probability of USD Index rising next month[35]

Core Viewpoint - The article discusses the recent fluctuations in the Hong Kong Interbank Offered Rate (Hibor) and its implications for the international monetary system, particularly in the context of the "de-dollarization" trend and the structural changes in global finance [2][25]. Group 1: Hibor Mechanism - Hibor reflects the average overnight borrowing rates among 20 major banks in Hong Kong and is influenced by the Hong Kong Monetary Authority's (HKMA) efforts to maintain a fixed exchange rate with the US dollar [3][5]. - The HKMA's actions to stabilize the currency involve adjusting liquidity in the banking system, which directly impacts Hibor rates [5][6]. Group 2: Hibor's Unexpected Low Levels - From May to August, Hibor experienced a significant drop from over 4% to near 0%, remaining at historical lows for three months before rising again [6][10]. - The prolonged low levels of Hibor were attributed to a decrease in the attractiveness of US dollar assets, which reduced the scale of carry and arbitrage trades that typically influence Hibor [6][15]. Group 3: International Monetary System Implications - The sustained low Hibor levels are seen as a reflection of the ongoing restructuring of the international monetary system, moving from a dollar-centric model to a more diversified framework [25][27]. - The article highlights two trends in this restructuring: fragmentation, indicating a return to local preferences in capital allocation, and diversification, where investors increasingly favor alternative assets like the Chinese yuan [27][15].

Group 1 - The central bank is expected to implement a 10-20 basis points interest rate cut in the fourth quarter [1] - A potential interest rate cut may deepen the inversion of the China-US interest rate differential, leading to capital outflows and depreciation pressure on the RMB [1] - Despite previous expectations, the interest rate differential has narrowed this year, and the RMB has appreciated following the central bank's easing measures [1] Group 2 - Even with a potential interest rate cut in the fourth quarter, the RMB is expected to maintain an appreciation trend for the year [1] - Under the baseline scenario, the USD/CNY exchange rate is projected to approach 7.0 by year-end [1] - In an optimistic scenario, where extraordinary counter-cyclical policies stimulate the economy or tariffs on Chinese imports are reduced by an additional 20%, the new equilibrium for the USD/CNY exchange rate is estimated to be around 6.7 [1]

Group 1 - The core viewpoint is that despite the People's Bank of China implementing interest rate cuts in Q4, the RMB is expected to appreciate, with the USD/RMB exchange rate projected to approach 7.0 by year-end under baseline conditions and 6.7 in optimistic scenarios [1] - The appreciation of the RMB is associated with improved market risk appetite, benefiting both A-shares and Hong Kong stocks, with the latter being more sensitive to foreign capital and global liquidity [1] - The macro report from China Galaxy Securities indicates signs of economic weakness in Q3, leading to a new policy waiting period, but there is no consensus on the expectation of interest rate cuts in Q4 [1] Group 2 - The current RMB appreciation is not driven by economic fundamentals but rather by a self-reinforcing cycle of exchange rate expectations and supply-demand dynamics in the foreign exchange market [2] - The Chinese government's low debt cost relative to economic growth and high efficiency in debt usage supports the exchange rate, with significant policy financial tools and special refinancing bonds expected to be implemented in Q4 [2] - An estimated $700 billion to $1 trillion in settlement demand may be released during the upcoming appreciation cycle, providing further support for the RMB exchange rate [2] Group 3 - Weak economic fundamentals typically correspond to lower valuations in the Chinese stock market, making it more attractive compared to other markets [3] - Significant interest rate cuts are expected to boost economic recovery expectations and enhance corporate profit forecasts, which are crucial for the performance of the Chinese stock market [3] Group 4 - In the US stock market, signals indicate that stock prices are relatively high, with the Shiller P/E ratio of the S&P 500 surpassing 40 for the first time since 2000, raising concerns about potential market corrections [6] - Federal Reserve Chairman Jerome Powell has warned that stock prices are relatively elevated, suggesting caution in the market [6]

Exchange Rate Projections - Under the baseline scenario, the USD/CNY exchange rate is expected to approach 7.0 by the end of the year[1] - In an optimistic scenario, with extraordinary counter-cyclical policies, the new equilibrium for USD/CNY could be around 6.7[1] Monetary Policy Implications - A potential interest rate cut of 10-20 basis points (BP) by the People's Bank of China (PBOC) in Q4 may not delay RMB appreciation but could intensify it[1] - The current market does not fully anticipate a rate cut, meaning the existing exchange rate does not factor in this possibility[1] Economic Context - The recent RMB appreciation is not driven by strong economic fundamentals but rather by expectations and a self-fulfilling cycle of currency appreciation[1][10] - The Chinese government's debt cost is currently lower than economic growth rates, supporting fiscal expansion and the exchange rate[1] Investment Insights - RMB appreciation is expected to benefit Chinese stocks, with historical data showing that a 1% appreciation typically leads to a 2.73% increase in A-shares and a 4.52% increase in Hong Kong stocks[6] - The current RMB appreciation cycle has seen A-shares rise by an average of 8.31% and Hong Kong stocks by 10.52% since April 8, 2025[6] Risks and Considerations - Risks include misinterpretation of policy, unexpected monetary policy actions, and potential increases in U.S. tariffs[50]