Summary of Key Points from Conference Call Industry Overview - The conference call primarily discusses the fixed income market and interest rate trends in the context of the broader financial environment in China, particularly focusing on government bonds and corporate financing costs. Core Insights and Arguments - **Interest Rate Trends**: There is a prevailing expectation that interest rates will continue to decline, with current rates for certain bonds nearing historical lows. For instance, the rate for 30-year government bonds is approximately 1.9% and for corporate bonds like Shidai New Materials, it is around 1.66% [3][12]. - **Market Dynamics**: The decline in interest rates is attributed to easing concerns at the end of the quarter and the central bank's liquidity support. Banks have been buying older bonds, especially short-term ones, due to reduced pressure on profitability [2][4]. - **Impact of Deposit Rates**: The rapid decrease in deposit rates, with major banks reducing rates by 50 to 70 basis points, has significantly lowered overall funding costs in the market. This trend is expected to continue, further affecting fixed income asset yields [7][8]. - **Corporate Financing Costs**: As corporate financing costs decrease, financial institutions face challenges in balancing liabilities and net interest margins. The decline in funding costs is a key factor driving down overall market yields [6][10]. - **Broad vs. Policy Interest Rates**: Broad interest rates, which include yields on loans and other alternative assets, are more reflective of market conditions than policy rates, which tend to lag behind. Currently, actual funding costs are higher than the policy benchmark by approximately 1.4% [5][12]. - **Future Market Expectations**: The market anticipates a new downward phase for interest rates, driven by changes in supply and demand dynamics and increased liquidity from the central bank. The government bond supply is expected to slow down in the third quarter [3][14]. Additional Important Insights - **Insurance Sector Impact**: The insurance industry has seen a reduction in preset rates to around 2.13%, which may further decrease, affecting the cost of liabilities and the return expectations for financial institutions [10]. - **Net Interest Margin Trends**: Banks have experienced a decline in net interest margins, with the average dropping to about 1.4% in the first quarter, indicating pressure on profitability due to lower asset yields [11]. - **Trade Negotiations**: The impact of U.S.-China trade negotiations on the Chinese bond market is considered limited in the short term, with a focus on actual trade data rather than negotiation progress. Investors are advised to adopt strategies that leverage short-term positions while extending duration on long-term bonds [15].

1. Report Industry Investment Rating No relevant content provided. 2. Core View of the Report - Interest rates are expected to reach new lows, with a new downward trend possibly starting from mid - to late June. The report believes that the 10 - year treasury bond could reach 1.4% - 1.5% within the year [5][18]. 3. Summary by Related Content Bond Market Performance This Week - The bond market fluctuated strongly this week, with most interest rates across different tenors declining. At the beginning of the month, funds became looser, with the R001 rate dropping to around 1.45% and the R007 rate to around 1.55%. The 10 - year and 30 - year treasury bond rates decreased by 1.7bps and 2.0bps to 1.65% and 1.88% respectively. The 1 - year AAA certificate of deposit rate fell 2.3bps to 1.68%, and the 3 - year and 5 - year AAA - secondary capital bond rates dropped 3.2bps and 1.9bps [1][8]. Alleviation of Market Concerns - Market concerns about the bond market have eased. Big banks have limited pressure to sell bonds, and there is no obvious need to realize floating profits at the end of the quarter. Although a large number of certificates of deposit will mature in the coming weeks, due to the limited liability pressure of banks, they are still lending a large amount of funds, and the certificate of deposit rates remain low. The central bank's repurchase operation at the beginning of the month also helps stabilize market expectations [1][8]. Factors Driving Interest Rate Decline - The main driver of interest rate decline is the decrease in the real - economy return rate. The weakening trend of prices in the next few months is expected to lead to a reduction in the financing cost that the real economy can accept. Empirical data shows a high correlation between industrial enterprises' EBIT/ total assets and the weighted average loan interest rate. The recent weakening of industrial product prices indicates a possible decline in corporate profitability in the next few months, which means the corporate - acceptable financing cost may continue to fall [2][9]. Manifestation of Interest Rate Decline - The decline in broad - spectrum interest rates is reflected in both the decrease in liability costs and the narrowing of net interest margins. The liability cost decline is evident in various financial institutions, with the yields of deposits, money market funds, wealth management products, and insurance products showing a downward trend. For example, the 1 - year and 5 - year deposit rates of Industrial and Commercial Bank of China have decreased by 50bps and 70bps respectively since the end of 2023, and were further reduced by 15bps and 25bps in May this year. The 7 - day average interest rate of Yu'E Bao has dropped below 1.2%, hitting a record low [3][12][13]. - Financial institutions' earnings are also on a downward trend. The net interest margin of banks has been decreasing over the past few years, dropping from 1.91% at the end of 2022 to 1.43% in the first quarter of this year, a decrease of 9bps compared to the end of last year, and it may continue to decline. Insurance's fee - difference loss may also be shrinking, and the management fees of various fixed - income asset management institutions may be under continuous pressure [4][15]. Short - term Driving Variables - In addition to the fundamental - driven decline in broad - spectrum interest rates, changes in asset supply and demand and the central bank's liquidity support will be the main short - term variables driving interest rates to break previous lows. The supply of government bonds will slow down in the next few months, while the supply of funds will remain abundant. The central bank has increased its support for liquidity, conducting repurchase operations in early June to maintain capital stability. The bond market may once again experience a situation where demand exceeds supply, and the asset shortage may reappear [4][17][18].