Group 1 - The core viewpoint is that the Shanghai Stock Exchange (SSE) has successfully issued 63 high-growth industrial bonds amounting to 41.905 billion yuan by July 31, 2025, involving 43 issuers [1] - As of the end of June, 53 high-growth industrial bonds had been issued with a total scale of 37.3 billion yuan, attracting over 80 non-bank institutions to participate in investment [1] - The SSE aims to reach a target of 100 high-growth industrial bonds issued by the end of the year to address long-standing structural issues in financing for small and medium-sized enterprises and private companies [1] Group 2 - High-growth industrial bonds are designed to alleviate the "financing difficulties and high costs" faced by industrial enterprises, with a focus on richer and more reliable information disclosure and clearer investor protection agreements [2] - The SSE is building a mechanism to enhance transparency and credibility among issuers, ensuring that both issuers and investors benefit from the high-growth industrial bond market [2] - The underlying principle of the high-growth industrial bonds is the concept of "credit equals return," aiming to strengthen the bond market's support for the real economy by excluding overly speculative junk bonds [2]

Group 1 - In February 2022, the bond market issued a total of 44,307.7 billion yuan in various types of bonds [1] - The issuance breakdown includes 4,800 billion yuan in government bonds, 5,071 billion yuan in local government bonds, 7,240.5 billion yuan in financial bonds, 7,518.4 billion yuan in corporate credit bonds, 45.0 billion yuan in credit asset-backed securities, and 19,366.1 billion yuan in interbank certificates of deposit [1] - By the end of February, the total custody balance of the bond market reached 136.3 trillion yuan, with government bonds at 22.4 trillion yuan, local government bonds at 31.3 trillion yuan, financial bonds at 31.9 trillion yuan, corporate credit bonds at 31.6 trillion yuan, credit asset-backed securities at 2.6 trillion yuan, and interbank certificates of deposit at 14.5 trillion yuan [1] Group 2 - In February, the interbank bond market saw a total transaction volume of 173 trillion yuan, with an average daily transaction of 10,825 billion yuan, marking a year-on-year increase of 69% and a month-on-month increase of 8.8% [1] - The average transaction size was primarily between 5 million to 50 million yuan, with an average transaction amount of 49.04 million yuan [1] - The exchange bond market recorded a transaction volume of 21 trillion yuan, with an average daily transaction of 1,281.9 billion yuan, reflecting a year-on-year increase of 54.3% and a month-on-month increase of 4.4% [1] Group 3 - As of the end of February 2022, the custody balance of foreign institutions in the Chinese bond market was 4.1 trillion yuan, accounting for 3% of the total custody balance [2] - Foreign institutions held 2.5 trillion yuan in government bonds, representing 62.3% of their total holdings, and 1.1 trillion yuan in policy financial bonds, accounting for 26.4% [2]

Core Viewpoint - The recent announcement by the People's Bank of China, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange marks a significant step in the institutional opening of China's bond market, facilitating foreign institutional investors' access to both interbank and exchange bond markets [1][2]. Group 1: Market Access and Regulations - The announcement simplifies the entry procedures for foreign institutional investors while expanding their investment scope to include the exchange bond market [1][2]. - Foreign institutional investors are allowed to invest directly or through mutual connectivity in the exchange bond market, with the ability to choose their trading venues autonomously [2]. - The range of approved foreign institutional investors remains unchanged, but the process for entering the market has been streamlined, eliminating the need for individual product filings for new products from registered institutions [2]. Group 2: Market Growth and International Confidence - As of April 2022, the total balance of China's bond market reached 138.2 trillion yuan, making it the second largest in the world, with 1,035 foreign institutional investors holding a total of 3.9 trillion yuan in bonds, a 225% increase since the end of 2017 [3]. - Major international bond index providers, including Bloomberg, JPMorgan, and FTSE Russell, have included Chinese bonds in their primary indices, reflecting international investors' confidence in China's long-term economic health and financial openness [3]. - The continued deepening of bond market openness is expected to attract more foreign capital into China, enhancing the international competitiveness of its financial markets [3].

Core Viewpoint - The implementation of the new rules for foreign institutional investors in the Shanghai Stock Exchange bond market is expected to enhance foreign investment scale and provide diverse funding sources for domestic bond issuers, promoting the long-term development of the bond market and accelerating the internationalization of the RMB [1][2]. Group 1: Implementation Details - The new rules require foreign institutional investors to appoint qualified commercial banks as custodians and domestic securities firms with membership in the Shanghai Stock Exchange as trading participants, with each securities account designated to only one trading participant [2]. - Foreign institutional investors are allowed to participate in various bond types, including exchangeable and convertible corporate bonds, asset-backed securities, bond lending, related derivatives for risk management, and bond funds, including exchange-traded bond index funds [2][3]. - Foreign institutional investors must also appoint domestic securities firms with qualifications as settlement participants to handle settlement operations [3]. Group 2: Market Impact - As of the end of May, the total custody balance of China's bond market was 139.1 trillion yuan, with foreign institutions holding 3.74 trillion yuan, accounting for 2.7% of the total [3]. - The new rules clarify the types of bonds that foreign institutional investors can engage with, particularly highlighting exchangeable and convertible corporate bonds, which are distinct from those in the interbank market, thus providing new asset allocation opportunities for foreign investors [3]. - The inclusion of bond funds in the investment scope for foreign investors is seen as a potential entry point, with index bond funds aligning with foreign investors' preferences and presenting lower entry barriers [4]. Group 3: Future Outlook - The ongoing development of the bond market's openness and the introduction of new policies are expected to continuously enhance foreign participation in the domestic bond market [4][5]. - The Shanghai Stock Exchange aims to further refine bond trading regulations to create a more favorable investment environment for both domestic and foreign investors, thereby better serving the real economy and establishing a new framework for high-quality development in the bond market [5].

Core Insights - The long-term driving force for foreign investment in China's bond market is the deepening of capital market openness and the internationalization of the RMB [1][3] - The bond market in China is becoming more mature as high-level financial openness continues to advance [1] Group 1: Market Development - China's bond market has seen a significant increase in total scale, ranking second globally, with a growth of 4.3 times since the end of 2012, reaching a total size of 3.74 trillion yuan held by foreign institutions, accounting for 2.7% of the market [1] - The bond market's opening has progressed through three phases since 2002, starting with limited access for foreign institutions via QFII, expanding to include central banks and monetary authorities, and culminating in the introduction of "Bond Connect" in 2017, which allowed direct access for foreign investors [1][2] Group 2: Foreign Investment Channels - Before the launch of "Bond Connect," foreign investors primarily accessed the Chinese bond market through QFII and direct investment in the interbank bond market [2] - "Bond Connect" has become the mainstream channel for foreign investors, facilitating access to the interbank bond market while adhering to domestic regulatory requirements [2] Group 3: Challenges and Future Outlook - External factors such as the US-China interest rate differential and RMB exchange rate expectations may influence the pace of foreign investment in bonds, with a noted decrease in holdings due to recent US monetary policy changes [3] - Despite challenges, there is potential for increased foreign investment in RMB bonds, particularly if the proportion of RMB bonds in international reserves rises over the next five years [3] - The bond market still faces issues such as low global holdings of sovereign bonds and limited foreign participation in credit bonds due to unfamiliarity with the domestic credit rating system [3]

8月份以来，监管部门两次部署加快推动柜台债券市场发展。记者通过摸底多地柜台债券发行机构 了解到，地方债销售火爆，多数一日售罄；国债也受到投资者欢迎。少数价格敏感型投资者则对柜台债 缺乏兴趣，更青睐银行理财、基金定投等产品。 接受《证券日报》记者采访的业内人士表示，当前，我国柜台债券市场总体保持稳健发展，在地方 债加速发行的背景下，柜台债券市场也有望扩围。 不过，专家也表示，目前，柜台债券市场仍面临投资债券品种有限、收益率相对较低、中小投资者 认识不足、信息披露不充分等问题，有待在监管部门的支持下进一步完善。 央行两次表态 推动柜台债券市场发展 8月1日，央行召开2022年下半年工作会议提出，"加快推动柜台债券市场发展"；8月10日，央行发 布的2022年二季度中国货币政策执行报告提出，健全高效联通的多层次债券市场体系，加快商业银行柜 台债券市场发展，提高债券市场流动性，形成更加连续有效的二级市场价格。 "监管加快推动柜台债券市场发展意在进一步满足市场多元化投融资需求。"中诚信国际研究院助理 总监汪苑晖对《证券日报》记者表示，当前，存款利率、理财产品收益率持续下行，且理财产品打破刚 兑，购买以利率债为主要品种的 ...

Group 1 - The bond market experienced a recovery, with the 10-year government bond yield declining from a high of nearly 1.74% on July 24 to around 1.69% [1] - The economic fundamentals show a "strong total + weak structure" characteristic, limiting the upward and downward space for government bond yields [1][6] - The People's Bank of China is expected to maintain a balanced and moderately loose monetary policy, with a potential 50 basis points (BP) reserve requirement ratio cut and 10-20 BP interest rate reduction by the end of Q3 or early Q4 [1] Group 2 - The recent meeting of the Central Political Bureau emphasized the implementation of existing policies rather than introducing new ones, indicating a cautious approach towards "anti-involution" measures [2] - The focus on "anti-involution" reflects a shift in policy emphasis from actual growth to nominal growth, suggesting a potential slowdown in economic growth in the second half of the year [2][6] - The July inflation data showed no signs of reversal in the economic fundamentals, with the Consumer Price Index (CPI) slightly exceeding market expectations while the Producer Price Index (PPI) declined by 3.6% [3][5] Group 3 - The bond market remains under pressure from strong policy expectations, with the focus shifting from total quantity to structural transformation and upgrading [1][2] - The current economic environment is characterized by "total resilience + structural differentiation," with prices in a bottoming phase and commodity prices supported by "anti-involution" policies [6] - The recovery of prices and the potential for PPI to turn positive depend significantly on demand-side performance, indicating that the bond market's direction is closely tied to demand and monetary policy changes [5][6]

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]