Economic Indicators - July manufacturing PMI recorded at 49.3%, down from 49.7% in June, indicating a significant contraction and falling below market expectations of 49.6%[2] - Non-manufacturing PMI decreased to 50.1% from 50.5%, while the composite PMI output index fell to 50.2%[2] Demand and Supply Dynamics - New orders fell below the expansion threshold, with new export orders declining by 0.6 percentage points, marking a four-month low[5] - The production index showed a notable decline but remained in the expansion zone, indicating ongoing production activity despite weakening demand[3] Price and Cost Pressures - Major raw material purchase prices surged, leading to a significant increase in factory prices, although the increase in factory prices lagged behind raw material costs, creating a record price gap for the year[7] - The supply chain faced pressures as the supplier delivery time index slightly increased, indicating stable logistics efficiency amidst rising costs[3] Inventory and Procurement Trends - Finished goods inventory saw a substantial decrease, reflecting a shift from passive to active inventory reduction strategies by companies due to high costs and weak demand[8] - Procurement volumes dropped significantly, entering a contraction phase as companies adjusted their purchasing strategies in response to declining orders[5] Sector Performance - Equipment manufacturing PMI fell to 50.3%, while consumer goods PMI dropped to 49.5%, indicating a contraction in consumer demand[4] - Large enterprises experienced a decline in PMI, while medium-sized enterprises showed a slight recovery, highlighting a growing disparity among different business sizes[4] Future Outlook - The July PMI data reversed the optimistic expectations from June, indicating a retreat in demand, inventory cycles, and industry dynamics[10] - The bond market is expected to reflect these economic realities, with the ten-year government bond yield showing an upward trend despite the contraction in manufacturing PMI[12]

1. Report Industry Investment Rating - No specific industry investment rating is provided in the report. 2. Core Views of the Report - After the Sino-US London negotiation, the trading focus of the bond market has returned to domestic factors. The current monetary policy has become loose, and there is a strong expectation of further easing in Q3. However, the bond market is expected to remain range - bound due to macro uncertainties [1][14]. - The central bank's policy intervention has changed the "trend bull" to an "oscillating bull" in the bond market. With the uncertainty of the Sino - US trade negotiation timeline and July being a potential policy announcement window, the bond market is expected to oscillate or rise slightly in the short term. Given the strong performance of the stock market this year, the bond market is expected to remain high and oscillate [2][30]. - The trading difficulty in the bond market increases with more macro uncertainties. It is recommended to capture short - term bullish opportunities and use arbitrage strategies while being cautious about short - term bond market risks caused by changes in market risk appetite [2][30]. 3. Summary According to Relevant Catalogs 3.1 Weak Fundamentals and Oscillation 3.1.1 Inflation and Growth Recovery Require Greater Policy Efforts - Since the beginning of the year, the Treasury bond futures market has been volatile with high - level oscillations. The central bank intervened in February to prevent excessive interest rate decline and capital idling, leading to a monthly correction in the bond market. Subsequently, medium - and long - term allocation funds bought when the 30Y interest rate rose by more than 20bp, stabilizing the market. The bond market then fluctuated due to Sino - US trade conflicts [5]. - The macro - fundamental situation remains at the bottom with oscillations. Exports have been affected by the Sino - US trade war, and domestic demand recovery is not significant. There is an "asset shortage" in RMB assets, and the structure has changed compared to the past two years. If external Fed rate cuts accelerate and internal policies stimulate the economy, the stock market may see a mid - term recovery; otherwise, the risk - free interest rate may continue to decline [6][7]. 3.1.2 Liquidity, Monetary Policy, and Seat Analysis - After the Sino - US London negotiation, the bond market trading focus is back on domestic factors. The current monetary policy is loose, and there is a strong expectation of further easing in Q3. However, the bond market is expected to remain range - bound due to macro uncertainties. The central bank's next focus is to boost inflation, promote growth, and reduce costs, but attention should be paid to market expectation reversals and changes in risk appetite [14]. - Currently, the trading volume of the 12 - contract is limited, and the short - term inter - delivery spread may be positively correlated with the market. The basis has converged during the repair process since early June, and the market has a demand for profit - taking in positive hedging. The curve structure has limited factors to support long - term steepening, and the steepening space may be reduced [15]. - Since June, the net long position in the market has increased slightly, indicating cautious market sentiment. After a slight upward oscillation of each contract recently, it may reach the upper limit of the stage range. Caution should be exercised against emotional disturbances [16]. 3.2 The Downward Trend of the Long - Term Interest Rate Center Remains Unchanged, but the Short - Term Rhythm Varies 3.2.1 The Downward Trend of the Long - Term Interest Rate Remains Unchanged - Since 2015, China's interest rates have generally shown a downward trend, with three upward periods lasting more than a quarter. The duration and amplitude of these upward periods have been decreasing. The current passive de - stocking period has lasted nearly 28 months, longer than the previous cycle. If fiscal policy remains "supportive but not aggressive", the long - term interest rate center will continue to decline [26]. 3.2.2 Market Outlook for the Second Half of the Year - The central bank's policy intervention has changed the bond market from a "trend bull" to an "oscillating bull". With the uncertainty of the Sino - US trade negotiation timeline and July being a potential policy announcement window, the bond market is expected to oscillate or rise slightly in the short term. The view that the bond market will remain high and oscillate is maintained. Trading difficulty increases, and it is recommended to capture short - term bullish opportunities and use arbitrage strategies while being cautious about short - term risks [2][30].

Overall Inventory Cycle - In March 2025, the total inventory in the U.S. increased by 3.47% year-on-year, compared to a previous value of 2.54%[1] - Sales in March 2025 rose by 4.05% year-on-year, up from 3.21% previously[1] - The U.S. was expected to enter an active destocking phase by late 2024, but tariff expectations led to a surge in imports, particularly in industrial and consumer goods, exceeding seasonal norms and potentially overextending future demand[1] Industry Inventory Cycle - As of March 2025, 10 out of 14 major industries were in a passive restocking phase, including chemicals, building materials, and metals[19] - The historical percentile for overall inventory growth in March was 40.8%, with chemicals at 87.1%, building materials at 68.9%, and automotive parts at 55.1%, indicating high inventory levels relative to historical data[19] - The oil and gas sector has been in an active destocking phase since March 2025, while other sectors remain in passive restocking[20] - The transportation sector is currently in an active destocking phase, while machinery manufacturing is in a passive destocking phase[21] - Consumer goods, including durable goods and textiles, are also in a passive restocking phase as of March 2025[22]