Report Information - Report Title: "Fixed Income Weekly: Have Large Banks Started Buying Long-Term Bonds? - Weekly Report on Bond Market Institutional Behavior (Week 1 of August)" [1] - Report Date: August 10, 2025 [2] - Chief Analyst: Yan Ziqi [3] - Analyst: Hong Ziyan [3] 1. Report Industry Investment Rating No industry investment rating information is provided in the report. 2. Report Core View - The bond market ran smoothly this week, with the 10-year Treasury yield slightly dropping to 1.69%, the funding rate staying around 1.42%, and the 5-year AAA medium - short note yield dropping to 1.91% [3][11] - Large banks continued to buy short - term bonds, and although they bought some long - term bonds, the volume was less than 10 billion yuan, so it's hard to say they have started buying long - term bonds. However, they have bought long - term local government bonds in multiple weeks since June, which may be related to duration balance and return requirements [3][4][12] - Funds further increased their purchases of credit bonds and Tier 2 capital bonds. With the easing of the funding situation, the bond market leverage ratio climbed, and there is still an opportunity for credit spreads to compress [4][13] 3. Summary by Directory 3.1 This Week's Institutional Behavior Review - **Yield Curve**: Treasury yields declined overall, with the 1Y yield down 2bp, 3Y down 3bp, 5Y down about 3bp, 7Y down 1bp, 10Y down 2bp, 15Y flat, and 30Y up 1bp. For CDB bonds, short - term yields declined and long - term yields increased, with the 1Y yield changing less than 1bp, 3Y down 1bp, 5Y down 1bp, 7Y changing less than 1bp, 10Y up 2bp, 15Y up 2bp, and 30Y up 1bp [14] - **Term Spread**: Treasury interest spreads rose, and the spreads widened overall; CDB bond interest spreads were stable, and the middle - term spreads widened [15][16][17] 3.2 Bond Market Leverage and Funding Situation - **Leverage Ratio**: It dropped to 107.51%. From August 4th to August 8th, it first decreased and then increased during the week. As of August 8th, it was about 107.51%, down 0.07 pct from last Friday and up 0.24 pct from Monday [21] - **Average Daily Turnover of Pledged Repurchase**: The average daily turnover of pledged repurchase this week was 8.1 trillion yuan, with the average daily overnight proportion at 89.87%. The average overnight turnover was 7.3 trillion yuan, up 1.53 trillion yuan month - on - month, and the overnight trading proportion was up 3.10 pct [27][28] - **Funding Situation**: Bank lending showed a fluctuating upward trend. As of August 8th, large and policy banks' net lending was 5.22 trillion yuan; joint - stock and urban/rural commercial banks' average daily net borrowing was 0.57 trillion yuan, and the net borrowing on August 8th was 0.74 trillion yuan. The net lending of the banking system was 4.47 trillion yuan. DR007 fluctuated upward, and R007 fluctuated downward [31] 3.3 Duration of Medium - and Long - Term Bond Funds - **Median Duration**: The median duration of medium - and long - term bond funds decreased to 2.81 years (de - leveraged) and 3.12 years (leveraged). On August 8th, the de - leveraged median duration was 2.81 years, down 0.02 years from last Friday; the leveraged median duration was 3.12 years, down 0.06 years from last Friday [45] - **Duration by Bond Fund Type**: The median duration (leveraged) of interest - rate bond funds decreased to 3.92 years, up 0.04 years from last Friday; the median duration (leveraged) of credit bond funds decreased to 2.89 years, down 0.07 years from last Friday. The de - leveraged median duration of interest - rate bond funds was 3.44 years, down 0.03 years from last Friday; the de - leveraged median duration of credit bond funds was 2.65 years, down 0.04 years from last Friday [48] 3.4 Category Strategy Comparison - **Sino - US Yield Spread**: It generally narrowed, with the 1Y narrowing by 8bp, 2Y by 10bp, 3Y by 6bp, 5Y by 9bp, 7Y by 7bp, 10Y by 6bp, and 30Y by 3bp [54] - **Implied Tax Rate**: It generally widened. As of August 8th, the CDB - Treasury spread widened by 2bp for 1Y, 2bp for 3Y, 1bp for 5Y, about 1bp for 7Y, 3bp for 10Y, about 2bp for 15Y, and less than 1bp for 30Y [55] 3.5 Bond Lending Balance Changes - On August 8th, the lending concentration of the active 10 - year Treasury bond increased, while the lending concentration trends of the second - active 10 - year Treasury bond, active 10 - year CDB bond, second - active 10 - year CDB bond, and active 30 - year Treasury bond declined. All institutions showed a decline [59]

Core Viewpoint - The restoration of value-added tax (VAT) on interest income from newly issued government bonds, local government bonds, and financial bonds is a significant adjustment to China's bond market tax system, promoting fiscal sustainability, reducing financial risks, and enhancing market efficiency [2][3][4] Group 1: Fiscal Sustainability - The restoration of VAT on bond interest income enhances the normative and sustainable nature of the fiscal system, especially in the context of needing to boost domestic demand and increase fiscal spending to stabilize growth [2] - This policy aids in strengthening fiscal regulation capabilities [2] Group 2: Financial Risk Reduction - The previous exemption from VAT led to speculative arbitrage by financial institutions, resulting in irrational investment preferences and increased vulnerability in the financial system [2] - The reintroduction of VAT compresses the space for artificial arbitrage, improving transparency and compliance in bond issuance and trading [2][3] Group 3: Market Efficiency and Reform - The restoration of VAT aligns the tax treatment of different bond types, enhancing pricing efficiency and resource allocation in the bond market [3] - Financial institutions will focus more on credit quality, risk-return ratios, and long-term value, directing funds towards high-quality development areas such as technological innovation and green economy [3] - The adjustment brings China's bond market closer to international practices, enhancing comparability and transparency, and promoting high-level financial openness [3][4] Group 4: Implementation and Transition - The policy adopts a "new and old distinction," allowing existing bonds to continue enjoying the previous tax exemption until maturity, thus avoiding severe shocks to the current bond market while gradually moving towards a more transparent and efficient development phase [4] - Future reforms can further refine tax collection details, strengthen market expectation guidance, and advance supporting systems like credit ratings and investor protection [4]

Core Viewpoint - The China Interbank Market Dealers Association held a seminar to promote the development of the interbank bond market and better serve local economic development [1] Group 1: Seminar Overview - The seminar was attended by the People's Bank of China Shanghai Headquarters and 34 provincial and municipal branches [1] - The seminar covered topics such as the registration and issuance of debt financing instruments for non-financial enterprises, innovative products, duration management, risk disposal, and credit derivatives in the interbank market [1] - Experts from market institutions discussed macroeconomic conditions and the bond market, as well as the application of AI tools [1] Group 2: Discussions and Outcomes - A business exchange forum was organized, where representatives from the People's Bank of China Shanghai Headquarters and branches from Henan, Ningxia, and Shenzhen shared insights [1] - Participants engaged in in-depth discussions on the bond market's "technology board" and other business matters [1] - The discussions enhanced understanding of the interbank bond market's development and its role in supporting local real economy needs [1] Group 3: Future Directions - The Dealers Association plans to continue promoting self-discipline, innovation, and service, while enhancing communication and cooperation with the People's Bank of China branches [1] - The goal is to contribute to the high-quality development of the interbank market [1]

本报记者 谢若琳 见习记者 毛艺融 外资机构配置人民币资产的热情持续高涨。国家外汇管理局数据显示，4月份境外投资者净买入境内债 券、股票分别为1247亿元和451亿元人民币。至此，境外机构投资者已连续8个月增持中国债券。 外资机构"买买买"的同时，参与中国债券市场的主体也在扩容。中国人民银行上海总部数据显示，截至 4月末，共有1129家境外机构主体进入银行间债券市场。 由此可见，人民币资产的吸引力正在增强，中国债市展现较强的"磁吸力"。 境外投资者 持续加仓中国债市 近期，互换通迎来进一步升级。5月13日，中国人民银行、香港证监会和香港金融管理局联合宣布支 持"互换通"机制安排进一步优化，包括新增"互换通"合约压缩功能、新增历史起息合约和IMM（国际货 币市场）合约、延长交易手续费全额减免执行期限等。 "这将更好地满足境外资产管理机构的入市交易需求，方便境外投资者参与内地银行间利率互换市场， 提升市场活力；助力人民币利率互换市场进一步与国际接轨；有利于推动香港和内地金融市场的长远发 展，推动人民币国际化进程。"香港交易所表示。 未来，外资机构增持人民币债券仍有较大空间。随着中国在全球经济中的重要性进一步提升、 ...

Core Insights - The "Bond Connect" program has achieved significant success since its launch seven years ago, facilitating the internationalization of China's financial market [1][2][3] Group 1: Performance and Impact - The average daily trading volume of the "Northbound Connect" has grown at an annual rate of 63%, with nearly 60% of foreign investors' transactions in Chinese bonds conducted through this channel [2] - In the past year, the "Swap Connect" has attracted 61 foreign institutions, resulting in over 4,300 transactions with a total nominal principal amount of approximately 2.2 trillion RMB [2] - Last year, international investors' total trading volume in mainland bonds exceeded 15 trillion RMB, with about two-thirds executed via "Bond Connect" [2] Group 2: Future Developments - The People's Bank of China plans to launch a new service allowing foreign institutions to use "Bond Connect" for paying "Swap Connect" margin, which will enhance the application of RMB bonds as offshore collateral [5] - Ongoing research aims to improve the openness of the bond market and enhance cross-border investment facilitation, including refining the "Bond Connect" and "Swap Connect" mechanisms [5] - The Hong Kong Stock Exchange is preparing to introduce a 10-year government bond futures product to help international investors manage RMB asset interest rate risks [6] Group 3: Regulatory and Market Integration - The Hong Kong Monetary Authority emphasizes the need for continued expansion of bond issuance in Hong Kong to enhance the offshore RMB bond market [7] - Future measures may include the introduction of government bond futures and bank bond repurchase agreements to meet diverse trading strategy needs of foreign investors [7]

Core Insights - Recent participation of over 1,160 foreign institutions in China's bond market indicates a growing confidence in the sector, with total bond holdings reaching 4.5 trillion yuan, an increase of over 270 billion yuan since the end of 2024 [1] - The total size of China's bond market has reached 183 trillion yuan, making it the second largest in the world, with significant increases in the weight of Chinese bonds in major international indices [1] - The current foreign investor bond holding ratio is only 2.4%, suggesting substantial room for growth compared to developed and some emerging markets [2] Group 1 - Over 1,160 foreign institutions from more than 70 countries and regions are actively participating in China's bond market, with total holdings of 4.5 trillion yuan, an increase of over 270 billion yuan since the end of 2024 [1] - The issuance of Panda bonds by foreign institutions has exceeded 950 billion yuan, reflecting strong interest in China's debt instruments [1] - China's bond market has been included in major international indices, with the weight of Chinese government bonds in the Bloomberg Global Aggregate Index reaching 9.7%, an increase of 3.7 percentage points over four years [1] Group 2 - The People's Bank of China plans to continue promoting high-level openness in the bond market, aiming to attract more foreign investors, especially long-term investors [2] - The current foreign investment ratio in China's bond market is relatively low at 2.4%, indicating significant potential for future growth [2]

Group 1 - The core viewpoint indicates that the new RMB loans and social financing in August exceeded market expectations, suggesting a neutral to tight liquidity state [1][2] - The economic data for August shows a recovery in consumption, investment, and exports, with retail sales increasing by 0.5% year-on-year, marking the first positive growth this year [1] - The monetary multiplier reached a historical high of 7.17 in August, reflecting strong credit expansion, while the excess reserve ratio continued to decline, leading to tighter interbank liquidity [2] Group 2 - The central bank's operations included a total of 620 billion yuan in reverse repos maturing this week, with a net injection of 90 billion yuan over the first four days [2] - Despite the central bank's excess MLF operations, the issuance rates for interbank certificates of deposit remained firm, indicating ongoing pressure on banks' medium to long-term liabilities [3] - The VIX index has decreased from a high of 38.28 to around 25, reflecting a decline in market risk appetite due to simultaneous declines in US crude oil and stock markets [3] Group 3 - FTSE Russell announced it will conduct a final assessment regarding the inclusion of RMB bonds in its indices, with a high likelihood of Chinese government bonds being included, which could attract significant allocation funds to the bond market [4] - The interbank lending center extended trading hours for overseas institutions investing in the Chinese bond market, demonstrating a positive regulatory attitude towards foreign capital [4]

Group 1 - The Inner Mongolia Autonomous Region is actively promoting the development of its bond market, with a current total of 40 outstanding non-financial corporate credit bonds amounting to 70 billion yuan [1] - The Inner Mongolia Electric Power Group has received significant support from the regional financial office in its bond issuance efforts, achieving the status of a "well-known mature issuer" on the Shanghai Stock Exchange, which lays a solid foundation for the issuance of technology innovation bonds [1] - The Inner Mongolia Energy Group has been guided by the regional financial office in its REITs issuance process since 2022, ensuring compliance and project planning for successful fund issuance [1] Group 2 - The recent event focused on "bond policy interpretation + financing tool training + discussion," highlighting the latest policies and optimization mechanisms for innovative bond products such as technology innovation bonds and high-growth industry bonds [2] - The event included detailed explanations of measures to prevent bond defaults and the usage of liquidity risk prevention funds, aimed at supporting local enterprises in their financing needs [2] - Representatives from various government departments and 19 enterprises participated in the event to explore the use of bond financing tools and to enhance direct financing channels [2]

Core Insights - The bond market's "technology board" has become a focal point for industry attention since 2025, supported by a series of policy measures aimed at enhancing financing for technology innovation [1][2] Policy Support - Since 2025, numerous policies have been introduced to support the technology innovation sector, with the bond market explicitly prioritizing technology innovation as a key financing direction [2] - The issuance of technology innovation bonds (referred to as "tech bonds") has gained significant momentum, with a total issuance scale of approximately 1 trillion yuan in the first half of 2025, representing an 86% increase year-on-year [2] - The total outstanding scale of tech bonds reached 2.5 trillion yuan by July 16, 2025, an increase of over 900 billion yuan since the beginning of the year [2] Market Growth - The underwriting scale of tech bonds continued its rapid growth trend, with a total underwriting amount of 381.39 billion yuan in the first half of 2025, reflecting a year-on-year increase of 56.48% [3] - The market for tech bonds is expected to maintain growth due to ongoing financing needs from tech enterprises and improvements in the issuance review mechanism [3] ETF Development - The first batch of tech bond ETFs raised 28.99 billion yuan, and by the fifth trading day, the total scale exceeded 100 billion yuan, reaching 101.09 billion yuan [4] - The overall bond ETF market has surpassed 500 billion yuan, indicating a growing demand for transparent, low-cost, and highly liquid investment tools [4] - The number of bond ETF products has increased from 20 at the end of 2024 to 39 by July 24, 2025, with the total scale of bond ETFs reaching 507.53 billion yuan, nearly doubling since the end of 2024 [4]

Core Insights - The issuance scale of Panda bonds in the interbank market has reached 1166.50 billion yuan as of August 3 this year, with the cumulative issuance surpassing 1 trillion yuan [1] - The variety of issuers for Panda bonds has increased, with a steady rise in the number of issuers, gaining favor from internationally renowned institutions, thus expanding the depth and breadth of the Panda bond market [1] - A report from China Chengxin International Research Institute indicates that the cost advantage of financing is a significant factor for the intensive issuance of Panda bonds, as the coupon rates of Panda bonds are significantly lower than those of concurrent US dollar bonds [1] - International issuers are motivated to replace existing US dollar debt with Panda bonds, which directly reduces financing costs, enhancing the willingness to issue due to this "cost-performance" advantage [1]