Core Viewpoint - The financial system is undergoing a significant shift towards debt issuance, with over 6 trillion yuan raised in the first half of the year, marking a record high for the period. This trend reflects a change in the financial logic of low-interest rates, where issuing bonds has become a more attractive option compared to attracting deposits [1][3]. Group 1: Financial Institutions' Debt Issuance - Financial institutions have collectively issued 6.05 trillion yuan in bonds as of July 10, 2025, representing a 17.34% increase year-on-year. Commercial banks lead with 5.38 trillion yuan, followed by securities firms and insurance companies [3][7]. - The importance of financial bonds has escalated from a supplementary option in liability management to a strategic tool for financial institutions [4][5]. - The current low-interest environment has made financial bonds a cost-effective means for institutions to raise funds, often at rates lower than traditional deposit rates [7][8]. Group 2: Market Dynamics and Trends - The financial bond market has seen a significant expansion since 1998, with various types of bonds being issued by different financial entities, including policy banks and commercial banks [6]. - The issuance of green financial bonds and technology innovation bonds has surged, directing funds towards key sectors like small enterprises and green industries, thus supporting economic transformation [16][15]. - The demand for financial bonds among institutional investors has increased, driven by the need for stable returns and risk diversification in a low-interest environment [14][13]. Group 3: Economic Implications - Financial bonds play a crucial role in alleviating debt burdens by allowing institutions to replace high-cost short-term debts with lower-cost long-term financing [15]. - The central bank's monetary policy, which remains accommodative, is expected to further enhance the attractiveness of financial bonds by keeping financing costs low [17][18]. - The shift in funding strategies among financial institutions reflects broader economic adjustments, with financial bonds serving as a balancing tool in response to market fluctuations [9][12].

Group 1 - The core logic of the bond market in 2025 shifts from "asset scarcity" to "liability scarcity," enhancing marginal pricing power in trading [2][6][7] - The overall economic recovery in the first half of 2025 supports the bond market, with key indicators performing better than expected, leading to a bottom constraint on bond prices [5][16][26] - The bond market experienced four phases in the first half of 2025: "fluctuation-bear-bull-fluctuation," influenced by monetary policy and tariff disturbances [5][26][39] Group 2 - The credit bond market continued to show positive net financing trends, with infrastructure bonds experiencing a decline in net financing while industrial bonds maintained rapid growth [6][39] - The yield on credit bonds initially rose and then fell, with overall credit spreads narrowing, indicating a shift in market dynamics [6][39][41] - The "liability scarcity" scenario has led to new behaviors among institutions, with traditional allocation channels facing instability due to declining premium growth and valuation adjustments [6][7][39] Group 3 - The second half of 2025 is expected to present opportunities for long positions in interest rate bonds, particularly around the 10-year government bond yield of 1.65% and the 30-year yield above 1.85% [2][8] - The report suggests that July will be a window for credit bond positioning, focusing on interest income and spread compression opportunities [8][39] - The overall outlook for the bond market in the second half of 2025 remains cautious, with expectations of stable growth policies and limited significant adjustments in the bond market [7][8][39]

Group 1: Report Industry Investment Rating - No industry investment rating information provided Group 2: Core Viewpoints of the Report - In May, the total financial data was relatively stable, but the structure was differentiated, and the credit sub - items were lower than expected. Government bonds were the main contributor to the social financing growth rate, offsetting the weak credit growth. The real estate on the household side was still in the process of recovery and showed stability, while the corporate side was more significantly differentiated. Short - term loans increased due to improved corporate expectations, and medium - and long - term loans were still affected by debt replacement. The M1 growth rate recovered due to the base effect. In the future, attention should be paid to the household consumption recovery path, policy support for the real estate market, and the possible slowdown of government bond issuance in the second half of the year [4] - The bond market is currently in a verification period of multiple factors. Attention should be paid to the main logic of the liability shortage and trading opportunities brought by short - term factor changes. There may be trading opportunities due to the central bank's bond - buying expectations and tariff policy changes, but also technical short - term risks caused by over - buying corrections [4] Group 3: Summary by Relevant Catalogs 1. Social Financing Growth Rate Remains Stable, and Bond Financing Provides Support - The social financing growth rate was stable compared with the previous month, continuing the high - growth level of the previous month. Bond financing provided support, while the loan side had some drag. The government bond issuance progress was fast this year, especially the issuance of special treasury bonds. The issuance of enterprise bonds also improved with the issuance of science and technology innovation bonds, which positively contributed to social financing [4][8] - In May, the social financing growth rate was flat month - on - month, slightly lower than expected. The new social financing scale was 228.94 billion yuan, with a year - on - year increase of 22.71 billion yuan and a year - on - year growth rate of 8.70%. Government bonds and enterprise bonds were the main drivers. Government bonds increased by 146.33 billion yuan, contributing 0.06 percentage points to the year - on - year growth rate of social financing scale. Enterprise bonds increased by 14.96 billion yuan, also positively contributing to the growth rate. The stock growth rate of off - balance - sheet financing was still positive, at a high level in the past year [4][11] 2. Household Credit is Relatively Stable, with Corporate Short - Term Loans Increasing and Medium - and Long - Term Loans Weak - In May, credit was lower than expected, and the structure was differentiated. Household medium - and long - term loans increased continuously, while debt resolution restricted corporate medium - and long - term loans. The new RMB loans were 62 billion yuan, with a year - on - year decrease of 33 billion yuan, and the credit balance growth rate dropped by 0.1 percentage points to 7.10% [4][19][21] - In the household sector, short - term loans decreased year - on - year, while medium - and long - term loans increased year - on - year. In the corporate sector, short - term loans were higher than the same period in the past two years, possibly due to improved corporate expectations after the easing of Sino - US trade relations. Medium - and long - term loans were weak, possibly due to the lagged effect of debt resolution. Corporate bond issuance also supplemented the medium - and long - term capital needs to some extent [4][19] 3. M1 Recovers Upward under the Low - Base Effect, and New Non - Bank Deposits Remain at a High Level - In May, the M1 growth rate widened to 2.30%, and the growth rate difference between M2 and M1 narrowed. The new RMB deposits were 218 billion yuan. The increase in the new scale of each department's deposits compared with the same period last year may be related to the base effect of the "manual interest compensation" last year. The M1 growth rate was supported by the base effect, financial policies, and the arrival of debt - resolution funds [33]

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - Since 2021, the logic of the "asset shortage" in the bond market is not applicable this year. Instead, the bond market presents a "liability shortage." The liability gap and structure are the main lines of bond market trading this year [2][5][12]. - The bond market is unlikely to rise trend - wise. Only continuous negative carry can drive the trend - wise correction of long - term interest rates. The probability of a tightening of capital prices in the second quarter is not high, and the market interest rate is expected to fluctuate in the range of 1.5% - 1.6% [2][8][22]. - The bond market has no obvious odds recently. A 10bp positive carry can boost the inter - bank bond market leverage ratio by about 0.1 - 0.2 percentage points. The current positive carry amplitude is insufficient, restricting the market's enthusiasm for leveraging [2][8][30]. - It is recommended to allocate when the 10 - year Treasury bond yield is above 1.65% and the 30 - year Treasury bond yield is above 1.9%. Institutions with stable liabilities can appropriately focus on the coupon opportunities of credit bonds with a term of more than 3 years [2][8][34]. 3. Summary by Related Catalogs 3.1 From "Asset Shortage" to "Liability Shortage", Bond Market Volatility - Before 2024, the "asset shortage" was the main line of the bond market. Due to the downward pressure on the real estate industry and the establishment of the regulatory red line for local implicit debt, credit expansion was constrained. Since this year, with the adjustment of the social financing structure and the relative stability of credit, the "asset shortage" is no longer the main contradiction. The supply of government bonds has increased, and the social financing growth rate has rebounded to 8.7% in April [5][12]. - While the asset supply has increased, the bond market faces a "liability shortage." The central bank's attitude is not the only source of liability pressure. Currently, the market style is more trading - oriented, lacking stable - liability configuration forces. Insurance's premium income growth has declined significantly this year, and its trading attribute has increased; wealth management is undergoing rectification, reducing the allocation of less - liquid credit bonds; public funds have a strong wait - and - see sentiment [8][19]. 3.2 Difficulty in Trend - wise Market, Focus on Curve Trading Opportunities - The bond market is difficult to rise trend - wise. In a relatively stable fundamental situation, only continuous negative carry can drive the trend - wise correction of long - term interest rates. The current fundamental situation is relatively stable, but the real interest rate is high, and there is still uncertainty in the fundamental recovery. The probability of a tightening of capital prices in the second quarter is not high [8][22]. - The bond market has no obvious odds recently. Although the bond market has returned to the positive carry range, the amplitude is insufficient, restricting the market's enthusiasm for leveraging. A 10bp increase in carry can increase the inter - bank bond market leverage ratio by 0.14 and 0.21 percentage points respectively. Since May, the average monthly inter - bank bond market leverage ratio has increased by about 0.2 percentage points compared with April [8][30]. - Before the bond market shows sufficient odds, it is difficult to have a trend - wise market. It is expected that the 10 - year Treasury bond yield will fluctuate around 1.6% - 1.7%. It is recommended to capture trading opportunities along the yield curve. Institutions with stable liabilities can focus on the coupon opportunities of credit bonds with a term of more than 3 years [8][34].

Group 1 - The report highlights that the previous leading indicators for bond pricing, particularly the reverse trading of rural commercial banks and the forward configuration of insurance in long-term bonds, may no longer be effective in the current market environment [5][6][14] - Rural commercial banks have shown a significant preference for increasing their holdings in 7-10 year government bonds, while their net buying of certificates of deposit has decreased [6][7] - The insurance sector has shifted its focus from long-term government bonds to local government bonds, indicating a change in investment strategy compared to previous years [14][15] Group 2 - The report discusses two quantitative trading strategies: mean-variance strategy aimed at maximizing expected returns under given risk levels, and threshold buy-sell strategy designed to identify high-value trading opportunities [18][22] - Evidence suggests that the effectiveness of leading indicators is declining, with rural commercial banks showing a reduced probability of bond yield increases following net buying actions in 2025 compared to previous years [18][24] - The report indicates that rural commercial banks have a relative advantage in timing their profit-taking actions, as their net selling after exceeding threshold levels correlates with lower probabilities of subsequent yield increases [24]

Core Viewpoint - The article discusses the recent volatility in the bond market, highlighting banks' strategies to manage profits through the sale of OCI and AC account assets to offset losses from rising interest rates [1][3][12]. Group 1: Market Conditions - The bond market experienced significant fluctuations, with long-term bond yields reaching new highs in 2025, such as the 10-year government bond yield hitting 1.8025% and the 1-year bond yield rising to 1.61% [1]. - The market has been characterized by a "negative feedback" loop, where the volatility in bond prices has led to a lack of profitability for many institutions since the beginning of the year [12]. Group 2: Bank Strategies - Banks are reportedly selling bonds from OCI and AC accounts to realize gains and manage quarterly profits, a practice that reflects the flexibility of accounting standards [3][6]. - The sale of OCI assets allows banks to transfer accumulated gains directly to the profit and loss statement, while AC asset sales enable the recognition of the difference between fair value and book value as current profits [6][14]. Group 3: Financial Impact - To fully offset the impact of bond market fluctuations on profits, banks would need to sell approximately 2.2 trillion yuan of OCI assets, which represents 9.7% of the OCI balance as of the third quarter of 2024 [13]. - The costs associated with selling OCI and AC assets include capital loss for OCI and the potential loss of interest income for AC, necessitating a cautious approach to asset liquidation [14]. Group 4: Institutional Performance - The ability of banks to release performance through OCI varies, with state-owned banks and rural commercial banks having the most capacity, while joint-stock and city commercial banks have limited space [12]. - The article notes that the ongoing liquidity issues faced by large banks, termed "liability scarcity," have affected their ability to invest in bonds, leading to a net selling trend observed since late February [10][9].