Report Industry Investment Rating The provided content does not mention the report industry investment rating. Core Views of the Report - Overseas markets: Since August, the US has raised tariffs, with its economy remaining resilient, inflation rising, and employment slowing unexpectedly. The Fed has hinted at rate cuts, leading to a decline in US Treasury yields and a slight depreciation of the US dollar. The eurozone economy is showing signs of improvement, with inflation remaining moderate, and the euro is expected to appreciate slightly against the US dollar. Japan's economy presents a mixed picture, with tariffs suppressing exports and core inflation cooling, and the yen is expected to fluctuate slightly against the US dollar. The narrowing of the Sino-US yield spread, the release of domestic entities' foreign exchange settlement demand, and the inflow of foreign capital into the domestic stock market have led to a slight appreciation of the RMB against the US dollar, and it is expected to continue to appreciate slightly in the short term [3]. - Macroeconomic fundamentals: In July, both demand and production converged, with the demand side experiencing a larger decline, partly due to falling prices. The production side showed a slight decline, indicating the implementation of anti-involution policies, but overall, it remained resilient. Export data slightly exceeded expectations, but there is downward pressure in the future. The bond market has largely anticipated the weakness in aggregate demand but is sensitive to the upward shift in the price center. As the inflation center rises, the bottom of bond yields will gradually increase [3]. - Monetary policy and liquidity: Since August, the central bank has made net injections, and the short-term capital price center has shifted downward. Looking ahead, the stock market may experience short-term fluctuations, and there are concerns about market overheating and capital idling. The supply of government bonds will remain high, and there will be pressure on the maturity of interbank certificates of deposit, leading to fluctuations in the end-of-quarter capital market. Overall, although there are more disturbances in the capital market, the downward trend in financing costs continues, and liquidity does not have a basis for a trend tightening [4]. - Interest rate bond strategy: Since August, bond yields have first declined and then risen due to fluctuations in industrial product prices under anti-involution policies. Looking ahead, aggregate demand remains weak, but the bond market's reaction to fundamentals is gradually dulling. There are increasing interference factors in the bond market, including the impact of anti-involution policies on prices, the stock market's rise, and the increase in bond interest income tax. However, given the weak demand, the possibility of a significant increase in interest rates is low, and the interest rate center is expected to rise, with the oscillation range also shifting upward. Trading desks can seize repair opportunities when interest rates rise, while allocation desks can intervene when interest rates reach the upper limit of the range, and medium- and long-term bonds are more valuable for allocation [4]. - Credit bond strategy: In August, the "stock-bond seesaw" effect continued to suppress the bond market, and the redemption pressure of funds intensified the volatility of long-term interest rates. As the bond market adjusts, the cost-effectiveness of medium- and high-grade credit bonds with a maturity of three years has increased, but the credit spread is still relatively low. It is recommended to focus on defensive strategies, appropriately reduce duration, and pay attention to coupon opportunities for bonds with a maturity of less than three years. The central bank has taken measures to maintain a balanced and loose liquidity environment, and the pressure on further significant price increases for certificates of deposit may be controllable [5]. Summary by Relevant Catalogs Part I: Overseas Markets - US economic situation: Since August, the US manufacturing and service sectors have expanded significantly. However, the employment market has slowed unexpectedly, and core inflation has continued to rise. The Fed is likely to implement a preventive 25-basis-point rate cut in September. The Fed has been gradually reducing its balance sheet, leading to a marginal convergence of US dollar liquidity. The primary demand for US Treasury bonds has weakened again, and long-term Treasury bond yields face upward pressure. The US dollar is expected to depreciate slightly in the short term [8][10][16]. - Eurozone economic situation: The eurozone economy is showing signs of improvement, with inflation remaining moderate. The euro has appreciated against the US dollar and is expected to continue to appreciate slightly in the short term [31][34]. - Japanese economic situation: Japan's economy presents a mixed picture, with external challenges increasing and core inflation cooling. The yen has appreciated against the US dollar and is expected to fluctuate slightly in the short term [39][44]. - RMB exchange rate situation: Since July, the inversion of the Sino-US Treasury yield spread has gradually decreased, and domestic entities' foreign exchange settlement demand has continued to be released. The RMB has appreciated slightly against the US dollar and is expected to continue to appreciate slightly in the short term [49][55]. - Gold market situation: In August, the price of gold fluctuated upward within a range. Non-commercial net long positions decreased slightly, while gold ETFs continued to flow in. Emerging central banks continued to purchase gold, supporting the medium- and long-term price of gold. It is expected that the price of gold will fluctuate at a high level in the short term [58][65]. Part II: Domestic Macroeconomy - Investment situation: From January to July, the growth rate of fixed asset investment continued to decline, with the growth rates of real estate, infrastructure, and manufacturing investment all falling. Real estate investment is still in the process of bottoming out, and the growth rate of real estate sales has slightly rebounded, while the land transaction premium rate has decreased. The downstream demand for steel is weak, and the price increase is not well supported [71][75][80]. - Consumption situation: In July, the growth rate of consumption continued to decline, mainly due to the diminishing effect of subsidies and the decline in automobile consumption [83]. - Export situation: From January to July, the cumulative year-on-year growth rate of exports was 6.1%, and the growth rate in July was 7.2%, showing strong resilience. However, due to factors such as the increase in tariffs and the overdraft effect of pre-exporting, the export growth rate is expected to decline in the future [86]. - Production situation: From January to July, the cumulative year-on-year growth rate of industrial added value was 6.3%, showing a slight slowdown. The operating rates of the steel and coal industries have generally increased [90][93]. - Employment situation: In July, the urban surveyed unemployment rate increased seasonally, and the employment demand of small and medium-sized enterprises decreased rapidly [96]. - Inflation situation: In July, the year-on-year growth rate of CPI was 0%, and the year-on-year growth rate of core CPI was 0.8%, showing an upward trend. The year-on-year growth rate of PPI stopped falling, and it is expected that the decline will gradually narrow in the future [99][102]. - VAT new policy: Since August 8, 2025, the interest income of newly issued government bonds, local government bonds, and financial bonds will be subject to VAT. This policy will lead to an increase in the spread between new and old bonds, benefit interbank certificates of deposit and credit bonds, and have an impact on financial institutions [103][104][106]. Part III: Liquidity and Monetary Policy - Liquidity review: In August, the central bank made net injections, and the short-term capital price center shifted downward, while the long-term capital price center changed little. The trading volume of pledged repurchase decreased in the middle and late August. The growth rate of M1 and M2 exceeded expectations, and the growth rate of social financing increased [116][121][130]. - Liquidity outlook: In September, the supply of government bonds is expected to remain high, and the maturity pressure of interbank certificates of deposit is large, leading to increased disturbances in the end-of-quarter capital market. However, given the weak demand, the downward trend in financing costs continues, and liquidity does not have a basis for a trend tightening [133]. Part IV: Interest Rate Bond Strategy - Interest rate bond trend: Since August, bond yields have generally shown an upward trend, mainly due to the rise of the stock market and the increase in bond interest income tax. The yield curve has become steeper, and the medium- and long-term spreads are relatively large [137][138][142]. - Investment strategy: Trading desks can seize repair opportunities when interest rates rise, while allocation desks can intervene when interest rates reach the upper limit of the range, and medium- and long-term bonds are more valuable for allocation [4].

Market Overview and Analysis - The primary market saw the issuance of government bonds, local government bonds, and policy financial bonds amounting to 468.6 billion, 165.5 billion, and 174.5 billion respectively, with net financing of 338.6 billion, 82.8 billion, and 174.5 billion [1] - Financial bonds (excluding policy financial bonds) totaled an issuance of 132.0 billion with a net financing of 12.5 billion [1] - Non-financial credit bonds had an issuance of 357.9 billion and a net financing of 198.7 billion [1] - One new convertible bond was issued with an expected financing scale of 1.17 billion [1] Secondary Market Review - The bond market showed resilience amidst a strong stock market environment, influenced by factors such as the month-end liquidity, new VAT policies, and central bank's buyout operations [2] Liquidity Tracking - Post month-end, the liquidity naturally eased, and the central bank's announcement of buyout reverse repos further supported new bond issuance, leading to an overnight funding rate dropping below 1.3%, which pushed down funding prices [3] - The R001 and R007 rates decreased by 1.3 basis points and 3.3 basis points respectively compared to the previous week [3] Policy and Fundamentals - July economic data indicated resilient export growth, with core CPI rising for five consecutive months, although the anti-involution policy slightly hindered PPI transmission [4] - High-frequency data showed a slight decline in production and sustained low levels in consumption, with both food and commodity prices decreasing [4] Overseas Market - The easing of the Russia-Ukraine conflict improved market risk sentiment, while deviations in U.S. Treasury auctions put pressure on U.S. bonds, with the 10-year U.S. Treasury closing at 4.27%, up 4 basis points from the previous week [5] Equity Market - The market returned to an upward trend, with the Shanghai Composite Index reaching a new high for the year, while the overall A-share market rose by 1.94% with reduced trading volume, maintaining an average daily trading volume of 1.7 trillion [6] - As of August 7, 2025, the total financing balance for the entire A-share market was 1,998.9 billion, an increase of 27.9 billion from July 31 [6] Bond Market Strategy Outlook - In a low-interest-rate environment, traditional allocations of new funds by residents and institutions towards deposits and bonds are beginning to shift towards assets with rights, forming the basis for the stock market bull run this year [7] - This behavior will not change the downward trend of bond market interest rates but may delay the speed of decline and increase short-term volatility [7] - With the impact of the VAT recovery subsiding, the 10-year bond yield may return below 1.7%, potentially weakening market bullish sentiment [7] - The further downward space for interest rates depends on the central bank's continued support for new bond issuances affected by VAT and the pace of stock market increases [7] - For credit bonds, a relatively loose liquidity environment remains favorable, but attention should be paid to the issue of excessive narrowing of credit spreads [7] - In the convertible bond market, following the rollback of previous anti-involution expectations, there is renewed selection space for convertible bonds, with high-priced bonds not entering conversion periods and those not strongly redeemed gradually moving towards dual highs, maintaining a good overall profit effect [7] - It is important to note that the current risk-reward asymmetry has weakened, and some volatility is inevitable, making participation more challenging for low-volatility strategy investors [7]

Group 1 - The core viewpoint of the article indicates that the bond market experienced a downward trend in yields, primarily influenced by a loose funding environment and the new VAT policy, resulting in a steepening yield curve [1][6] - As of August 8, the yields for 30Y, 10Y, and 1Y government bonds changed by 1.1BP, -1.68BP, and -2.28BP, respectively, closing at 1.96%, 1.69%, and 1.35% [1][6] - The yield spread between 30Y-10Y and 10Y-1Y increased by 2.78BP and 0.6BP to 27.09BP and 33.85BP, indicating a steepening of the yield curve [1][6] Group 2 - The bond issuance scale from August 4 to August 10 saw an overall increase, with government bonds issued amounting to 468.55 billion yuan, local bonds at 165.46 billion yuan, and interbank certificates of deposit at 775.88 billion yuan, totaling an increase of 505.72 billion yuan compared to the previous week [2][18] - The issuance progress of local bonds reached 64.7%, with new special bonds and general bonds at 64% and 68.2%, respectively, indicating a steady issuance pace [2][18] Group 3 - The central bank's net withdrawal through reverse repos was 536.5 billion yuan from August 4 to August 8, with a subsequent announcement of a 700 billion yuan buyout reverse repo, maintaining a balanced and loose funding environment [3][20] - The DR001 rate slightly decreased by 0.23BP to 1.31%, while the DR007 remained stable at 1.43% [3][20] Group 4 - The bond market strategy suggests a bullish outlook with a focus on trading opportunities, emphasizing the need to monitor four key factors: improvement in the fundamentals, the central bank's support for a balanced funding environment, the impact of the VAT policy on market volatility, and the balance between stocks and bonds [4][22] - The strategy recommends maintaining duration in a volatile market while focusing on trading values of old bonds and allocation values of new bonds, with a caution to take profits when yields are low [5][23]

Core Viewpoint - The bond secondary market showed increased trading activity in July, particularly in credit bonds, with a "V-shaped" trend in credit spreads, which first narrowed and then widened, ending the month at a low level for the year [1][4]. Trading Activity - The total transaction amount in the bond secondary market for July reached 413,960.27 billion, representing a year-on-year increase of 3.28% and a month-on-month increase of 9.36% [2]. - In terms of bond types, interest rate bonds had a transaction amount of 256,461.17 billion, with a year-on-year increase of 0.38% and a month-on-month increase of 11.88%. Credit bonds had a transaction amount of 86,840.69 billion, showing a year-on-year increase of 16.32% and a month-on-month increase of 12.28% [4]. Credit Bond Characteristics - The transaction structure of credit bonds showed divergence, with industrial bonds experiencing a significant increase in transaction volume by 22.35%, but a decline in quality as the proportion of AAA-rated bonds decreased while AA+ and AA-rated bonds increased. The duration extended towards the 3-5 year medium to long term [4]. - Conversely, city investment bonds saw a slight decrease in transaction volume by 2.40%, with credit quality concentrating towards AAA-rated bonds and durations extending beyond 5 years [4]. Credit Spread Trends - The overall credit spread exhibited a "V-shaped" trend, narrowing initially and then widening, with the month-end spread at 44.99 basis points, which is an increase of 14.54 basis points compared to the same period last year, but a slight decrease of 1.33 basis points from the end of the previous month [4]. Industry Spread Analysis - As of July 31, the median credit spreads by industry showed high spreads in textiles and apparel (153.07 bp), real estate (98.47 bp), and electrical equipment (86.35 bp), while public utilities and transportation had lower spreads (44.89 bp and 46.84 bp respectively) [5]. - Most industries in the industrial bond sector saw a decrease in credit spreads, with upstream energy remaining stable, while the communication sector in midstream manufacturing experienced a slight widening [5]. Future Outlook - The trading activity in credit bonds is expected to continue to rise, with credit spreads likely to remain within a fluctuating range. The implementation of the new VAT policy is expected to maintain the tax burden on industrial and city investment bonds, enhancing their comparative advantages and potentially increasing institutional demand [4][5].

Group 1 - The core point of the article is that China Agricultural Development Bank and China Exim Bank are set to issue a total of 6 financial bonds on August 6, marking the highest number of financial bonds issued in a single day since 2002 [1] - China Agricultural Development Bank plans to issue financial bonds totaling no more than 42 billion yuan across four maturities: 392 days, 3 years, 5 years, and 10 years [1] - China Exim Bank plans to issue financial bonds totaling no more than 9 billion yuan with maturities of 15 months and 66 months [1] Group 2 - After August 8, the interest income from newly issued national bonds, local government bonds, and financial bonds will be subject to value-added tax again [1]

Core Viewpoint - The new VAT policy for individual investors aims to alleviate fiscal pressure and redirect funds from the bond market to the stock market, with the exemption lasting until December 31, 2027 [2][3]. Group 1: Policy Changes - From August 8, 2025, interest income from newly issued government bonds, local government bonds, and financial bonds will be subject to VAT [2][3]. - Existing bonds issued before August 8, 2025, will continue to be exempt from VAT until maturity [2][3]. - Small-scale VAT taxpayers with monthly sales below 100,000 yuan will be exempt from VAT until December 31, 2027 [2][3]. Group 2: Fiscal Implications - The new policy is expected to increase fiscal revenue, with estimates suggesting a potential short-term revenue of approximately 33.7 billion yuan from the new VAT on bond interest [3][4]. - The total issuance of government bonds, local government bonds, and financial bonds in 2024 is projected to reach 32.6 trillion yuan [3]. - The overall VAT revenue from bond interest could reach around 100 billion yuan in the future, considering the expanding fiscal policy and increasing bond issuance [3][4]. Group 3: Market Impact - The adjustment in VAT policy is anticipated to enhance the attractiveness of equity assets compared to bonds, as the after-tax returns on bonds will decrease [4]. - Financial institutions may prefer to hold older bonds that remain exempt from VAT, limiting the impact of the new policy on the market [4][5]. - The overall influence of the tax policy change on the bond market is expected to be limited due to the large existing bond issuance and the market's capacity to absorb new bonds [5].