Core Viewpoint - The Chinese bond market is experiencing a "duration segmentation" phenomenon, where short-term rates are declining while long-term rates are rising, driven by monetary policy, inflation expectations, and fiscal financing factors [1][3]. Group 1: Monetary Policy and Liquidity - Since May 8, 2025, following the interest rate cut, short-term rates (1-3 years) have steadily declined due to a loose liquidity environment, while long-term rates (5 years and above) have increased, with the 30-year rate rising nearly 50 basis points [1]. - The People's Bank of China has restructured its liquidity support system to cover short, medium, and long-term needs, with a focus on long-term liquidity provision in 2026 [2]. - In January 2026, the net injection of 6-month reverse repos reached 300 billion yuan, increasing to 500 billion yuan in February, while the MLF balance rose to 6.95 trillion yuan, the highest since October 2024 [2]. Group 2: Inflation Expectations and Fiscal Financing - Inflation expectations are influencing medium-term rates (5-10 years), with market sensitivity to indicators like GDP deflator and PPI increasing [3]. - Fiscal financing is the primary driver of long-term rate fluctuations, with an expected peak in the issuance of special government bonds as the "Two Sessions" approach [3]. - Historical data indicates that an increase in government bond supply typically leads to a steepening of the 30-year rate, which currently has a spread of about 45 basis points over the 10-year rate [3]. Group 3: Market Dynamics and Future Outlook - The current market structure challenges policymakers' ability to finely tune monetary policy and requires investors to adapt their analytical frameworks [4]. - The average weighted interest rate for corporate loans remained low at 3.2% as of January 2026, showing no significant decline from December 2025 [4]. - There is still potential for interest rate cuts in 2026, with a possible reduction of the statutory deposit reserve ratio by around 50 basis points [5].

1. Report Industry Investment Rating No relevant content provided. 2. Core View of the Report - The short - end of the bond market depends on the central bank. The central bank's influence on the short - end funding has increased, bringing stability to the funding and alleviating the funding stratification. In the absence of interest rate cuts, the overnight funding rate corridor is expected to be between 1.2% - 1.4%. The short - end prices will be more stable, and the non - bank funding price stratification will also be fully alleviated. The performance of short - term bonds within 10 years is more related to the central bank's interest rate cuts and funding control [1][9][16]. - The long - end of the bond market depends on fiscal policy. The supply of ultra - long government bonds is an important factor affecting the long - end term spread. It is expected that the supply of ultra - long government bonds this year may still put upward pressure on the ultra - long - end bond yields. The 30 - year treasury bond yield is expected to break through the 2.2% key point, but after the breakthrough, attention should be paid to the post - festival fiscal supply. The 30 - year bond is more suitable as a flexible variety for right - side trading [1][9][34]. 3. Summary by Relevant Catalogs Short - end Depends on the Central Bank - **Increased Influence and Stability**: The central bank's influence on the short - end funding has significantly increased, bringing stability to the funding and basically solving the funding stratification problem, providing a stable space for carry strategies. Without interest rate cuts, the subsequent overnight funding rate corridor is expected to be between 1.2% - 1.4%. As the domestic interest rate transmission mechanism improves, short - end funding prices will be more stable, and the interest rate corridor, especially the upper limit, will narrow [1][9][16]. - **Alleviation of Non - bank Funding Stratification**: In Q1 2025, the spread between DR001 and R001 widened rapidly, but since then, the funding stratification has been significantly alleviated. Currently, the monthly spread between DR and R is stable within 10BP, providing a stable coupon strategy for non - banks. The performance of short - term bonds within 10 years is more related to the central bank's interest rate cuts and funding control [9][17]. - **Overseas Experience**: The Federal Reserve effectively controls the short - end bond market interest rates. The one - year US Treasury bond yield moves almost in line with the federal benchmark interest rate [9][30]. Long - end Depends on Fiscal Policy - **Influence of Ultra - long Government Bond Supply**: Ultra - long government bond supply is an important factor affecting the long - end term spread of the bond market, and the 30Y - 1Y spread is more sensitive to this factor than the 10Y - 1Y spread. Empirical results show that the net financing of ultra - long bonds and CPI year - on - year have a positive driving effect on the term spread, and the 30 - year treasury bond is more sensitive to the supply shock of ultra - long bonds [34]. - **Overseas Experience**: In the long run, the long - end US Treasury bond yields are affected by fiscal factors. However, during special periods such as QE or QT, they are disturbed by the Federal Reserve's policies. The scale of government debt on the fiscal side, especially the outstanding balance of long - term Treasury bonds, has a significant impact on the long - bond term spread [36]. - **Domestic Situation in 2026**: Since 2026, the issuance duration of local bonds has continued to lengthen. As of February 10, 2026, the weighted issuance duration of local bonds was 13 years, an increase of 0.6 years compared to last year. The new local bond issuance scale in January 2026 was 4285 billion yuan, slightly higher than 3053 billion yuan in the same period last year. It is expected that the overall fiscal rhythm this year will be the same as last year, with the supply peak mainly in the second and third quarters. The supply of ultra - long government bonds this year may still be a risk factor for the bond market. The 30 - year treasury bond yield is expected to break through 2.2%, but after the breakthrough, attention should be paid to the post - festival fiscal supply, and it is more suitable for right - side trading [9][39][43].

Core Viewpoint - The People's Bank of China (PBOC) has initiated temporary reverse and repurchase operations to maintain liquidity in the banking system and enhance the precision of open market operations [1][3]. Group 1: Market Reactions - Long-term bond yields have generally increased by approximately 3 basis points, with the 30-year government bond yield reaching 2.5225% [2]. - Short to medium-term bond yields have risen by 5-7 basis points, with the 1-year government bond yield increasing to 1.58% [2]. Group 2: Impact of Temporary Operations - The introduction of temporary reverse and repurchase operations aims to narrow the interest rate corridor and reduce volatility in the funding market [3]. - The new interest rate corridor is set with an upper limit of 2.30% and a lower limit of 1.60%, which is expected to stabilize the funding market [3]. Group 3: Market Sentiment and Strategy - Analysts suggest that the PBOC's actions signal a significant shift in monetary policy, indicating a potential increase in market interest rates [3][6]. - There is a cautionary stance regarding the bond market, with recommendations for institutions to secure profits and avoid bottom-fishing until uncertainties are resolved [5][6].

Group 1 - The current macroeconomic environment features a coexistence of strong expectations and weak realities, with market implied economic growth expectations potentially exceeding those of the past three years, while actual economic performance remains weak [3] - The recent configuration trend in the bond market shows that 10-year bonds are outperforming 30-year bonds, government bonds are better than policy bank bonds, and credit bonds are preferred over interest rate bonds [3] - In February, the overall environment is favorable for the bond market due to a policy and economic data vacuum, seasonal production slowdown, and strong initial configuration forces, although the weak asset status of bonds has not fundamentally reversed [3] Group 2 - The analysis of the bond market from Q4 2025 to the present indicates that the bond market experienced a range-bound fluctuation, with yields initially rising and then falling due to central bank bond purchases and fundamental downward pressure [36] - In January 2026, the bond market saw a recovery from pessimistic expectations, driven by configuration activities that led to a decline in bond yields, despite a generally bearish outlook [36] - The central bank's liquidity provision in January was ample, aiming to support economic activity and align with government bond issuance, although the pricing of funds remained restrained due to various influencing factors [41][45]

Core Viewpoint - The market is increasingly focused on the "quasi-ONRRP" tool, which may become a new direction for enhancing the monetary policy framework aimed at non-bank financial institutions [1][2] Group 1: Background and Current Situation - The current monetary policy transmission chain places non-bank institutions at the "downstream," leading to a natural "temperature difference" in liquidity access [2] - The People's Bank of China (PBOC) primarily directs liquidity tools towards commercial banks, causing non-bank institutions to rely on indirect liquidity access through banks or asset liquidation [2][5] - This indirect mechanism may fail under market pressure due to banks' risk-averse tendencies, weakening the transmission effect [2] Group 2: Market Dynamics and Liquidity Indicators - The difference between DR007 (a repo rate among deposit-taking institutions) and R007 (a broader market funding cost indicator) reflects liquidity friction, with R007 generally higher than DR007 [5] - During periods of liquidity stress, the spread between DR007 and R007 can widen significantly, impacting non-bank institutions' liquidity management [5] Group 3: Importance of Non-Bank Institutions - Non-bank financial institutions, such as securities firms and fund management companies, manage trillions of yuan in assets and play a crucial role in various financial market transactions [5][6] - Their business models often involve liquidity risk due to high leverage and maturity mismatches, necessitating a more robust liquidity support mechanism from the central bank [5][6] Group 4: Potential Mechanisms and Tools - Analysts suggest that the PBOC's exploration of liquidity support for non-bank institutions may point towards a "quasi-ONRRP" tool, similar to the Federal Reserve's approach [6][9] - The mechanism could involve specific liquidity support arrangements that address the unique challenges faced by non-bank institutions during stress scenarios [7][9] Group 5: Challenges and Controversies - There are differing opinions on the effectiveness and implementation of the quasi-ONRRP tool, with some experts arguing that it may not serve as a substantial liquidity boost for non-bank institutions [8] - Concerns exist regarding the definition of "specific scenarios" and the prevention of moral hazard in the proposed liquidity support framework [7][8] Group 6: Future Outlook - The PBOC may refine its liquidity support mechanisms by considering factors such as price, quantity, duration, collateral, and counterparty qualifications [9] - The overall market liquidity is expected to remain balanced and loose, with the central bank likely to use reverse repos and MLF to manage fluctuations [9]

Group 1 - The core view of the report indicates that the near-term concerns in the bond market may have been alleviated, while long-term inflation worries remain a potential constraint on market performance [2][4][15] - The report highlights that the People's Bank of China (PBOC) has shifted its stance towards a more accommodative monetary policy, which may support the bond market and mitigate the impact of government debt issuance [2][32][46] - The anticipated increase in local government bond issuance in February is projected to reach 1.38 trillion yuan, despite a reduction in the issuance scale of key government bonds [3][42][44] Group 2 - The report discusses the potential for inflation to impact monetary policy, emphasizing that inflation concerns will only significantly affect the bond market if they lead to changes in monetary policy [4][49][63] - It notes that recent fluctuations in commodity prices are primarily driven by supply or external factors, with domestic demand not showing significant recovery, which may limit the transmission of price increases to consumer prices [4][53][59] - The manufacturing PMI index has fallen below the growth line, indicating a weak economic momentum that may require further confirmation in March during the peak construction season [4][67][69] Group 3 - The trading structure in the bond market has improved, with strong demand from banks for long-term government bonds, which may lead to a potential breakthrough of the 1.8% yield level for 10-year government bonds [7][72][78] - The report suggests that if the 10-year government bond yield effectively breaks through 1.8%, it could signal a reversal in market sentiment, potentially leading to increased buying of long-term bonds [7][78] - The report emphasizes that the overall market sentiment remains cautious, but the strong buying from major banks indicates a potential for continued strength in the bond market [7][75][78]

Economic Indicators - As of February 1, 2026, the weekly ECI supply index is 50.09%, up 0.03 percentage points from last week, while the demand index is 49.86%, up 0.02 percentage points[10] - The monthly ECI supply index for January is 50.02%, an increase of 0.09 percentage points from December, while the demand index is 49.84%, down 0.01 percentage points[13] - The ELI index as of February 1, 2026, is -0.25%, an increase of 0.40 percentage points from last week[16] Industrial Production - The operating rate for automotive full steel tires is 62.44%, down 0.18 percentage points from last week, while the coke oven production rate is 70.73%, down 0.66 percentage points[22] - The high furnace operating rate is 79.02%, up 0.36 percentage points from last week, and up 1.02 percentage points year-on-year[21] Consumer Trends - The average daily sales of passenger cars for the week ending January 18, 2026, is 50,171 units, a decrease of 23,608 units year-on-year[28] - The ticket revenue for the week is 1,327.85 million yuan, down 2,739.53 million yuan from last week and down 66,911.91 million yuan year-on-year[29] Real Estate Market - The transaction area of new homes in 30 major cities is 143.17 million square meters, up 23.18% from last week, while the second-hand home transaction area is 245.33 million square meters, down 2.35%[34] Export Performance - The SCFI index is 1,316.75, down 141.11 points from last week, while the Baltic Dry Index is 1,989.00, up 248.00 points[40] - The export growth rate for South Korea in the first 20 days of January is 14.90%, an increase of 8.20 percentage points from December and up 20.00% year-on-year[39]

Report Industry Investment Rating No information provided in the report. Core Viewpoints - The expected new tool of the central bank is likely different from the Fed's ONRRP, and narrowing the interest - rate corridor may have limited practical significance for the capital market. There is a possibility that the central bank will combine new tools with self - regulatory requirements to reduce the cost of banks absorbing non - bank inter - bank deposits [5][36][41]. - Affected by the Spring Festival, local government bond issuance in February is front - loaded. It is expected that the issuance scale of government bonds in February and March 2026 will be 2.15 trillion and 2.63 trillion respectively, and the net financing scale will be 1.38 trillion and 1.13 trillion respectively. The cumulative net financing scale of government bonds in the first quarter is about 3.70 trillion, which may still be lower than the 4.1 trillion in the same period in 2025 [7][59]. - Next week, the pressure of the central bank's policy tool maturity and government bond payment is still high, and the cash - withdrawal demand may increase near the Spring Festival. However, considering the central bank's loose tone, it is expected that the capital market will remain stable [10][68]. Summary by Directory 1. Money Market 1.1 This Week's Capital Market Review - OMO had a net injection of 5805 billion yuan this week. There was a 200 billion yuan MLF maturity on Monday, and the Ministry of Finance conducted a 150 billion yuan 1 - month treasury cash fixed - deposit operation on Wednesday with the winning bid rate remaining at 1.73% for three consecutive months. The capital tightened marginally at the beginning of the week but loosened later, with DR001 falling to around 1.33% [3][16]. - The trading volume of pledged repurchase declined continuously after Monday, and the overall scale of pledged repurchase rose oscillatingly before Thursday and dropped significantly on Friday. The net lending of large - scale banks fluctuated after a decline on Monday, while that of small and medium - sized banks rose continuously before Thursday and dropped on Friday but remained higher than last week. The overall net lending of banks fluctuated with a slightly lower center compared to last week. Non - bank rigid lending increased continuously, and non - bank rigid borrowing rose oscillatingly. The capital gap index rose on Monday, then declined continuously, and rose again on Friday. The season - adjusted index reached - 409.8 billion, slightly higher than - 496.1 billion last Friday, and the non - season - adjusted index was - 532.9 billion on Friday, still below the neutral level [4][24]. - The cross - month progress of the exchange market accelerated at the beginning of the week, and the gap compared with previous years was narrowing, but it was still relatively late overall. The cross - month progress of the inter - bank market institutions continued to lag, and the gap compared with previous years continued to widen, with more than 50% of the funds crossing the month on the last trading day. Overall, the institutions' cross - year progress was late, still at the latest level in the same period over the years, but the capital market remained loose at the end of the month under the central bank's support [4][28]. - The new tool expected by the central bank is likely different from the Fed's ONRRP. Narrowing the interest - rate corridor may mainly clarify existing rules and have limited practical significance for the capital market. There is a possibility that the central bank will combine new tools with self - regulatory requirements to reduce the cost of banks absorbing non - bank inter - bank deposits [5][36][41]. 1.2 Next Week's Capital Outlook - The issuance scale of 1 - year and 2 - year treasury bonds next week will drop to 130 billion and 120 billion respectively, and the treasury bond payment is expected to be about 245 billion yuan. The local government bond issuance scale of 15 regions such as Jiangxi, Guangdong, and Henan next week is 579.7 billion yuan, including 75.5 billion yuan of new general bonds, 134.3 billion yuan of new special bonds, and 369.9 billion yuan of refinancing bonds. The average issuance term of local government bonds in the first week of February decreased from 17.7 years in January to 16.1 years. Considering the time lag of payment, the actual payment scale of local government bonds is 478.7 billion yuan. The net payment scale of government bonds next week may drop to 460.4 billion yuan [6][43][45]. - Affected by the Spring Festival, local government bond issuance in February is front - loaded. It is expected that the local government bond issuance scale in February will reach 1.11 trillion yuan, and the treasury bond issuance scale will be 1.04 trillion yuan with a net financing of 420 billion yuan. The assumptions for government bond issuance in March remain unchanged. Overall, it is expected that the government bond issuance scale in February and March 2026 will be 2.15 trillion and 2.63 trillion respectively, and the net financing scale will be 1.38 trillion and 1.13 trillion respectively. The cumulative net financing scale of government bonds in the first quarter is about 3.70 trillion, which may still be lower than the 4.1 trillion in the same period in 2025 [7][56][59]. - The maturity scale of 7 - day reverse repurchase next week is 1761.5 billion yuan in total, and there will be a 700 - billion - yuan 3 - month buy - out repurchase maturity on Friday. The net payment scale of government bonds will drop from 515 billion yuan this week to 460.4 billion yuan, mainly concentrated on Friday with a scale of 308.3 billion yuan. Next Thursday (the 5th) is the reserve payment day for the first ten - day period. The new stock of Aide Technology on the Beijing Stock Exchange will be issued online on February 2nd, with the raised funds scale dropping to about 200 million yuan. Considering the central bank's loose tone, it is expected that the capital market will remain stable [63][68]. 2. Inter - bank Certificates of Deposit - The 1 - year Shibor rate decreased by 1.6 BP to 1.63% compared with January 23rd. The 1 - year AAA - rated inter - bank certificate of deposit secondary rate remained unchanged at 1.60% compared with last week [69]. - The issuance scale of inter - bank certificates of deposit decreased slightly less than the maturity scale this week, with a net repayment scale of 8.98 billion yuan, a decrease of 190 million yuan compared with last week. The net financing scales of state - owned banks, joint - stock banks, city commercial banks, and rural commercial banks were - 3 billion yuan, 1.28 billion yuan, - 6.13 billion yuan, and - 1.53 billion yuan respectively. The 3 - month certificate of deposit had the largest issuance volume, accounting for 42%, and the issuance proportion of 1 - year certificates of deposit increased by 14 pct to 30% compared with last week. The maturity scale of certificates of deposit next week is about 13.39 billion yuan, a decrease of 33.3 billion yuan compared with this week [73]. - The issuance success rates of state - owned banks, city commercial banks, and rural commercial banks decreased compared with last week, while that of joint - stock banks increased. Except for the relatively low issuance success rate of joint - stock banks, each bank was near the average level in recent years. The issuance spread of 1 - year certificates of deposit between city commercial banks and joint - stock banks narrowed [76]. - The willingness of money market funds in the primary market and other institutions, wealth management products, and fund companies in the primary and secondary markets to increase their holdings of certificates of deposit decreased this week. The relative strength index of certificates of deposit continued to decline seasonally, dropping by 7.2 pct to 15.7%, still at a neutral level in the same period over the years. In terms of different terms, the supply - demand indexes of 3 - month and 9 - month certificates of deposit increased, while those of other term varieties decreased [84]. 3. Bill Market - This week, bill interest rates first decreased and then increased, showing a narrow - range oscillation. As of January 30th, the 3 - month bill interest rate of state - owned and joint - stock banks remained unchanged at 1.45% compared with January 23rd, and the 6 - month bill interest rate decreased by 2 BP to 1.11% [91]. 4. Bond Trading Sentiment Tracking - This week, the yields of interest - rate bonds oscillated in a narrow range, the yields of credit bonds declined slightly, and most credit spreads narrowed slightly. Large - scale banks tended to increase their bond holdings, especially showing a significant increase in the willingness to increase their holdings of treasury bonds. Trading - type institutions tended to reduce their bond holdings overall, with securities companies' willingness to reduce holdings increasing, fund companies' willingness to increase holdings decreasing, but other institutions and products' willingness to increase holdings increasing. Allocation - type institutions tended to reduce their bond holdings overall, with insurance companies' and wealth management products' willingness to increase holdings decreasing, and small and medium - sized banks' willingness to reduce holdings decreasing [92].

Monetary Policy Insights - The discussion on whether the People's Bank of China (PBOC) should create new price-based overnight tools is driven by the need to enhance guidance on overnight market rates and the recent volatility in interbank overnight rates[1] - The PBOC is currently in a phase of balancing both quantity and price in its monetary policy, with the 7-day reverse repo rate serving as the short-term policy rate[2] - The effectiveness of a price-based framework in China hinges on the establishment of an "ample reserve system," which has not yet been fully realized[2] Economic Indicators - Fixed asset investment has decreased by 3.80% year-on-year[3] - Retail sales have shown a modest increase of 0.90% year-on-year[3] - Exports have increased by 6.60% year-on-year, indicating some resilience in external demand[3] Market Trends - The real estate market shows signs of recovery, with both new and second-hand home transactions increasing, although inventory pressure remains high with a sales-to-inventory ratio of 127.8, a historical high[40] - The logistics data indicates a year-on-year increase of 12.2% in commercial activity, reflecting a recovery in consumer demand despite a 70.1% decline in movie box office revenues[20] - The port cargo throughput has decreased by 1.70% month-on-month but increased by 6.87% year-on-year, influenced by seasonal factors[23] Fiscal and Monetary Developments - The broad deficit issuance is expected to increase, with net financing of government bonds projected at 1,420 billion and new special bonds at 3,024 billion in the upcoming week[32] - The willingness to leverage in the bond market remains high, with the balance of bonds awaiting repurchase still above historical levels[38]

1. Report Industry Investment Rating No information about the report industry investment rating is provided. 2. Core Viewpoints of the Report - The background and operation mode of the Fed's overnight reverse repurchase tool (ON RRP) are inconsistent with the current orientation of domestic monetary policy operations. There is no need to separately establish a liquidity recovery tool for non - bank institutions in China [9][22]. - The central bank's new policy tools may revolve around implementing the narrowing of the interest rate corridor and liquidity rescue, and the form is different from ON RRP [9][12]. - The central bank's tool innovation will advance along the existing policy direction, and the policy goal of stable operation of capital interest rates is clear, with a generally neutral short - term market impact [34]. 3. Summary According to the Directory 3.1 China's Central Bank: "Providing Liquidity to Non - bank Institutions" and "Narrowing the Interest Rate Corridor" - "Providing liquidity to non - bank institutions" is a mechanism arrangement under specific scenarios, aiming to prevent financial risks and block the spread of risks to the financial system [9]. - The central bank has long aimed to narrow the interest rate corridor, but relevant tools have not been clearly implemented. Future new tools to narrow the interest rate corridor will not target non - bank institutions [10][11][12]. 3.2 The Fed: Overnight Reverse Repurchase, Interest Rate Corridor, and Liquidity Rescue Tools 3.2.1 Overnight Reverse Repurchase (ON RRP): The Lower Limit of the "Floor System" after QE - The ON RRP is implemented by the New York Fed at a fixed time through its open - market operating system, with counterparts including non - bank institutions such as money market funds. It has become a normalized tool for short - term liquidity management [14][15][19]. - The core background for the Fed to form the lower limit of the "floor system" through ON RRP is the large amount of liquidity redundancy caused by quantitative easing, which makes the reserve interest rate ineffective as the lower limit of the interest rate corridor. There is no need for China to set up a similar tool currently [19][22]. 3.2.2 Liquidity Rescue Tools: Money Market Fund Liquidity Facility, etc. - The Fed has created a series of emergency or temporary policy tools, such as the Money Market Mutual Fund Liquidity Facility (MMLF), which can effectively block the spread of risks in the financial system and maintain the continuous operation of the short - term capital market [24][25]. 3.3 Policy Conjecture: Causes of Capital Interest Rate Deviation and Speculation on Policy Tools 3.3.1 Large Deviations of Capital Interest Rates are Related to Policy Regulation and Bank Liabilities - Historically, large deviations of capital prices from policy interest rates are related to policy regulation and bank liabilities. Bank liabilities are one of the core factors determining capital prices [30]. 3.3.2 The New Monetary Policy Tools will Focus on Implementing the Narrowing of the Interest Rate Corridor and Liquidity Rescue - One new tool will target the implementation of "narrowing the interest rate corridor", operating on banks or primary dealers, and may be a "deposit facility" for primary dealers to regulate the lower limit of capital lending prices [32]. - The other new tool will target the implementation of "liquidity rescue", which may be established after the revision of the "Central Bank Law" or bypass direct liquidity provision to non - bank institutions through mechanism design [33].