1. Report Industry Investment Rating No relevant content provided. 2. Core Views of the Report - Although the central bank is gradually downplaying quantitative targets and transitioning towards price - based tools, social financing and M2 are not decoupled from the bond market. The transformation takes time, and the central bank does not completely abandon quantitative targets. A decline in social financing is inherently favorable for the bond market. In 2026, the growth rate of social financing is expected to decline in a volatile manner, with the first and fourth quarters being relatively stable and the second and third quarters facing greater downward pressure. In particular, the disturbance of social financing to the bond market will significantly bottom out in the first quarter, so the bond market can be somewhat optimistic [2]. - The predicted growth rate of social financing in 2026 is 7.6%, corresponding to a new social financing of around 33.5 trillion yuan. The growth rate of M2 is expected to be around 7.1% [3]. 3. Summary According to Relevant Catalogs 3.1 Total Perspective on Social Financing and M2 in 2026 3.1.1 How to View the Growth Rates of Social Financing and M2 with the Downplaying of Quantity and Optimization of Intermediate Variables? - In November 2025, the central bank proposed to optimize intermediate variables of monetary policy and gradually downplay the focus on quantitative targets. This sets the tone for the adjustment of the intermediate target of monetary policy in 2026. The growth rate of financial aggregates will decline naturally due to the large base and the shift from high - speed to high - quality economic growth [10][13]. - Downplaying quantitative targets does not mean having no requirements for social financing and M2. The transformation of the intermediate target of monetary policy takes time, and in the short term, the central bank still adheres to the "basic matching" principle [15]. 3.1.2 What Changes are There in the "Basic Matching" Principle? - Reasons for setting the "basic matching" principle: It is conducive to cross - cycle policy design, stabilizing the monetary aggregate in the long term, providing a scientific "anchor" for macro - policies, guiding market expectations, and stabilizing the macro - leverage ratio [15]. - Understanding of "basic matching": It does not mean "exactly equal"; it requires comprehensive consideration of nominal economic growth, potential output, and economic growth targets; and it is a medium - to - long - term concept, not a short - term one [19]. - By taking annual data as an example, the years when the growth rates of social financing and M2 were mentioned as "basically matching" with the nominal GDP growth rate are 2018, 2019, and 2021. The annual intervals for the "basic matching" of the growth rate differences between social financing and nominal GDP and between M2 and nominal GDP are [- 0.2%, 3.2%] and [- 2.4%, 1.2%] respectively. When refined to quarters, the time periods when the central bank quantitatively mentioned "basic matching" cover the third quarter of 2018 to early 2020, 2021 - 2023 (related to the economic cycle), and 2024 (switched to "economic expected targets") [20][22][23]. 3.2 Forecast of Social Financing and M2 in 2026 3.2.1 Total Forecast - Based on the predicted nominal GDP growth rate of about 4.5% in 2026, referring to the "basic matching" principle, the predicted growth rate of social financing is around 7.6%, corresponding to a new social financing of around 33.5 trillion yuan. Considering the strong base effect of M2 in 2026, the growth rate of M2 is expected to be around 7.1% [26][27]. 3.2.2 Sub - item Analysis of Social Financing in 2026 - **Credit**: The new credit in 2026 is expected to be around 15.2 trillion yuan, with a growth rate of around 5.6%. The rhythm is expected to be high in the front and low in the back, and the structure will continue to focus on the "Five Major Articles" [30][31]. - **Government Bonds**: The net financing of government bonds in 2026 is expected to be around 15.5 trillion yuan. The issuance rhythm is expected to be balanced and front - loaded, with the possibility of an increase in the fourth quarter [34][35]. - **Corporate Bonds**: The net financing of corporate bonds in 2026 is expected to be around 1.7 trillion yuan, with a rhythm of low in the front and high in the back [40]. - **Other Items**: The net financing of off - balance - sheet items is expected to be around 0 trillion yuan, and the total of stock financing, credit write - offs, ABS, and foreign currency loans is expected to be around 1.1 trillion yuan, with a rhythm of low in the front and high in the back [41]. 3.2.3 Forecast of the Rhythm within the Year - The overall new social financing is 33.5 trillion yuan, corresponding to a stock growth rate of 7.6%. The rhythm of social financing and M2 is expected to be high in the front, low in the middle, and stable in the back. The predicted credit growth rates/ social financing growth rates/M2 growth rates for Q1/Q2/Q3/Q4 are (6.3%/5.7%/5.8%/5.6%)/(8.1%/7.8%/7.6%/7.6%)/(7.6%/7.2%/6.8%/7.1%) [4][5]. 3.3 How to View Interest Rates When Social Financing is at a Low Level and Credit is Declining? - Currently, policies are downplaying the focus on financial aggregates, and the intermediate variables of monetary policy are shifting from quantitative to price - based tools [45]. - However, the relationship between social financing, M2, and interest rates does not change with monetary policy. A downward trend in social financing growth allows for moderate optimism in the bond market. The bond market is under less pressure in the first quarter [46].

Group 1 - The core viewpoint of the report indicates that the stability of the fixed income market is recovering, with a focus on the liquidity situation and upcoming policy signals by the end of the year [1][2][3] - In October, the excess reserve ratio decreased by approximately 0.2 percentage points to 1.2%, slightly below the expected 1.3%, primarily due to an increase in government deposits [1][19] - Government deposits rose by 625.8 billion yuan in October, exceeding the expected 378.1 billion yuan, which contributed to the lower-than-expected excess reserve ratio [1][19][20] Group 2 - In November, the broad fiscal deficit is expected to be relatively high, but with a significant increase in government debt net payments, government deposits are projected to decrease by about 250 billion yuan, which will provide some liquidity support [2][27] - The report anticipates an increase in monetary issuance of approximately 140 billion yuan in November, with a rise in reserve requirements by about 110 billion yuan [2][28] - The central bank's net repurchase operations in November are expected to result in a net withdrawal of 5,562 billion yuan, while MLF net investment is projected at 1,000 billion yuan [2][42] Group 3 - The report highlights that the central bank's monetary policy is expected to remain relatively loose, with a focus on maintaining stability in the financial system despite some tightening in the money market [3][55] - The average issuance scale of key-term government bonds in November decreased compared to October, indicating a potential shift in government financing strategies [2][33] - The report notes that the central bank's net purchase of government bonds in November was only 50 billion yuan, which is lower than market expectations, reflecting a cautious approach to liquidity management [4][57] Group 4 - The report discusses the implications of the central bank's emphasis on "cross-cycle" and "counter-cyclical" adjustments, indicating a desire to manage the growth of social financing and M2 in relation to nominal GDP [3][45] - It is noted that the central bank's actions may be a response to previous recommendations from the National People's Congress regarding monetary policy adjustments [4][48] - The report suggests that while there is a potential for interest rate cuts in Q1 of the following year, the timing may be influenced by the overall economic conditions and fiscal policies [4][11]

Monetary Policy Insights - The central bank's 7-day OMO net injection this week was 626.2 billion yuan, with a gradual easing of the funding environment after a spike in rates earlier in the week[3] - The average daily transaction volume of pledged repos decreased by 0.53 trillion yuan to 7.44 trillion yuan, indicating a decline in overall market activity[3] - The new funding gap index rose to -113.5 on Tuesday, reflecting fluctuations in liquidity conditions throughout the week[3] Financial Data Overview - In October, the excess reserve ratio fell by 0.2 percentage points to 1.2%, slightly below the expected 1.3%[21] - New social financing in October was 816.1 billion yuan, significantly lower than the previous year's 1.41 trillion yuan, with a notable decline in credit and government bond financing[24] - The M2 growth rate decreased from 8.4% to 8.2% in October, influenced by a drop in bank bond investment scale[24] Government Debt and Financing - The upcoming government bond payment scale is set at 333 billion yuan, with total new general bonds issued this year reaching 702.6 billion yuan and special bonds at 4.1492 trillion yuan[5] - The expected net financing scale for November's government bonds is approximately 1.16 trillion yuan, an increase of about 630 billion yuan compared to October[5] Market Reactions and Expectations - The central bank's proactive stance on monetary policy adjustments suggests a potential interest rate cut by Q1 2026, responding to the current economic environment[5] - The financial market's response to the recent monetary policy report indicates a cautious optimism, with expectations for continued support for the real economy despite potential risks[5]