1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - In the second half of 2025, the monetary policy will remain "moderately loose," with 1 - 2 times of RRR cuts and interest rate cuts possible, likely in September - October. The policy will focus on raising price levels, boosting domestic demand, strengthening cooperation with fiscal policy, and intensifying the use of structural tools such as relending. There is also a possibility of restarting treasury bond trading [4][32]. - The issuance of interest - rate bonds in the second half of the year may exceed 14 trillion yuan. The supply pressure will be high in the third quarter, and there may be an additional issuance of government bonds in the fourth quarter. The core trading range of the 10 - year treasury bond yield is expected to be 1.4% - 1.7% [4][36]. 3. Summary According to the Table of Contents 3.1 Monetary Policy and Liquidity Monitoring - **Implementation of a Package of Monetary Policy Measures with a Continuously "Moderately Loose" Tone**: The monetary policy framework has been continuously adjusted, with the policy - rate attribute of MLF fading out. The 7 - day reverse repurchase rate has become the core policy rate. The policy tone remains "moderately loose," with RRR cuts and interest rate cuts implemented again, and structural tools continuously exerting their effects. Open - market operations have been marginally relaxed, and more attention has been paid to asset prices [6][7][9]. - **Quarterly Decline in the Central Level of Capital Interest Rates**: In the first quarter, due to the central bank's emphasis on preventing capital idling, the capital market was relatively tight. In the second quarter, after the implementation of RRR cuts and interest rate cuts and the marginal easing of the central bank's attitude, the capital interest rates declined. The spread between DR007 and R007 remained at a low level [13]. 3.2 Operating Characteristics of the Interest - Rate Bond Market - **Year - on - Year Increase in the Issuance of All Types of Interest - Rate Bonds**: In the first half of 2025, the issuance scale of interest - rate bonds reached 16.88 trillion yuan, a year - on - year increase of 37.8%. The issuance of treasury bonds, local government bonds, and policy - bank bonds all increased. Special treasury bonds worth over 1 trillion yuan were issued [16]. - **Downward Trend in the Central Level of Interest - Rate Bond Yields**: The yields of interest - rate bonds generally showed a trend of rising first and then falling, with the central level declining quarterly. The operation of the 10 - year treasury bond yield can be divided into three rounds, with different influencing factors in each round [21][22]. - **Widening but Still Low Term Spread and Narrowing Local Bond Spread**: In the second quarter, the 10Y - 1Y spread widened marginally but remained at a historically low level. The local bond spread narrowed, which may be related to the previous decline in treasury bond yields and increased trading and allocation of local bonds by some institutions [28]. 3.3 Outlook for the Second Half of the Year - **Possible RRR Cuts and Interest Rate Cuts and Strengthened Use of Structural Tools**: Due to the uncertainty of external and domestic demand increasing the pressure on economic recovery, the monetary policy will remain "moderately loose" in the second half of the year, with 1 - 2 times of RRR cuts and interest rate cuts possible. The policy will focus on raising price levels, boosting domestic demand, strengthening cooperation with fiscal policy, and intensifying the use of structural tools [32]. - **Issuance of Interest - Rate Bonds May Exceed 14 Trillion Yuan and Declining Yield Central Level**: In the second half of the year, the issuance of interest - rate bonds may exceed 14 trillion yuan, with high supply pressure in the third quarter and a possible additional issuance of government bonds in the fourth quarter. The central level of yields will continue to decline, and the core trading range of the 10 - year treasury bond yield is expected to be 1.4% - 1.7% [36][39].

Report Industry Investment Rating - Not provided in the given content Core Viewpoints of the Report - The Shanghai Stock Exchange piloted the continuous issuance business of corporate bonds, which enriches the issuance methods of corporate bonds, enhances financing flexibility, and promotes the development of the bond market [3][9]. - In April, the growth rates of major economic indicators slowed down, but the economic recovery still showed some resilience. The central bank net - injected funds, and the capital prices showed mixed trends. The issuance of credit bonds in the primary market heated up, while the trading activity in the secondary market declined, and the yields of most bonds decreased [4][5][6][31]. Summary by Relevant Catalogs Market Hotspot - On May 22, 2025, the Shanghai Stock Exchange issued a notice to pilot the continuous issuance of corporate bonds and the expansion of asset - backed securities. The continuous issuance of corporate bonds allows incremental issuance on existing bonds, which has advantages such as improving issuance efficiency and enhancing bond liquidity. Credit rating agencies need to optimize rating methods [3][9][10]. Macroeconomic Data - In April, the growth rates of production, consumption, and investment data slowed down slightly. The year - on - year growth rate of industrial added value was 6.1%, 1.6 percentage points lower than the previous month. The year - on - year growth rate of social retail sales was 5.1%, 0.8 percentage points lower than the previous month. The cumulative year - on - year growth rate of fixed - asset investment from January to April was 4.0%, 0.2 percentage points lower than in the first quarter. However, equipment purchase investment played a leading role [4][12]. Money Market - Last week, the central bank net - injected 960 billion yuan through open - market operations. The overnight and 7 - day pledged repurchase rates decreased by 7bp and 5bp respectively, while the other - term pledged repurchase rates increased by 1 - 5bp. The 3 - month Shibor remained unchanged from the previous week, and the 1 - year Shibor increased by 1bp, with the spread widening to 4bp [5][14]. Primary Market of Credit Bonds - Last week, the issuance of credit bonds heated up, with a scale of 241.311 billion yuan, an increase of 108.134 billion yuan from the previous period. The issuance scales of various bond types and industries increased. The average issuance interest rates of bonds of various terms and grades generally increased, with an increase range of 2bp - 44bp [6][17][18]. Secondary Market of Credit Bonds - Last week, the trading volume of cash bonds in the secondary market was 8.408721 trillion yuan, and the average daily trading volume decreased by 31.2034 billion yuan from the previous period. The yields of interest - rate bonds fluctuated slightly, and the yield of 10 - year treasury bonds increased by 4bp to 1.72%. The yields of credit bonds decreased comprehensively, with a change range of 1 - 7bp. The credit spreads narrowed comprehensively, with a range of 1bp - 9bp, and the rating spreads showed mixed trends [7][31][34]. Regulatory and Market Innovation Dynamics - Multiple regulatory policies were introduced in May 2025, including promoting the construction of a scientific and technological finance system, supporting the issuance of science and technology innovation bonds, and providing policy support such as fee reduction and exemption to encourage innovation in the bond market and support scientific and technological innovation [44][46][47]. Bond Market Credit Risk Events - There were multiple credit risk events in the bond market, including bond principal and interest extensions, defaults, etc., involving companies such as Wuhan Contemporary Technology Investment Co., Ltd. and Guangzhou R & F Properties Co., Ltd. [43].

Core Insights - The Shanghai Stock Exchange (SSE) has successfully launched 53 high-growth industry bonds with a total issuance scale of 37.3 billion yuan as of June 30, attracting significant attention from small issuers and private enterprises in the bond market [1][2] - Over 80 non-bank institutions have participated in investing in high-growth industry bonds this year, making them an important choice for various investment institutions to enhance returns [1] - The SSE has established a comprehensive service team for high-growth industry bonds, promoting a service model that encourages intermediary institutions to optimize project standards and support enterprises in financing [1][2] Industry Developments - The issuance of high-growth industry bonds has been positively influenced by policy support and market demand since 2025, with notable examples including the Guangxi Modern Logistics Group's bond with a coupon rate of 2.95% and the Shanxi Xinzhu Shenda Energy Group's bond at 2.58% [1][2] - High-growth industry bonds are designed to alleviate financing pressure for quality enterprises and seize opportunities for industrial upgrades, supported by enhanced investor protection clauses and optimized information disclosure mechanisms [2] Market Mechanisms - The SSE requires issuers of high-growth industry bonds to focus on their repayment capabilities, improving the timeliness and relevance of information disclosure to keep investors informed about operational dynamics [2] - The SSE guides lead underwriters to provide market-making or inquiry pricing services for high-growth industry bonds, enhancing market liquidity and allowing investors to enter and exit the market easily [2] Future Outlook - The SSE has established cooperative mechanisms with eight securities firms to create a dynamic project database for high-growth industry bonds, aiming for a targeted service approach to meet enterprise financing needs [3] - The SSE plans to conduct market-wide training sessions in the second half of the year to promote the regular issuance of high-growth industry products, with a goal of reaching 100 issuances by the end of the year [3]

Core Viewpoint - The expansion of the Bond Connect "Southbound" channel will facilitate the investment of domestic investors in offshore bond markets, allowing more non-bank institutions such as funds, brokerages, insurance, and wealth management firms to participate. This measure will take effect on August 25, 2025 [1][3]. Group 1: Expansion of Southbound Bond Connect - The Southbound Bond Connect previously targeted 41 bank-type financial institutions and qualified domestic institutional investors (QDII and RQDII) for offshore bond investments. The expansion will now include four types of non-bank institutions [3][6]. - The expansion is expected to enhance global asset allocation channels for non-bank institutions, improving investment flexibility and potential returns. It will also stimulate innovation in financial products and business development [3][4]. - The annual quota for the Southbound Bond Connect, currently set at 500 billion RMB, may be increased as more institutions participate, leading to higher demand for offshore bond assets and increased activity in the Hong Kong bond market [6][7]. Group 2: Market Impact and Future Expectations - The expansion is anticipated to inject new liquidity into the Hong Kong bond market and deepen the interconnection between domestic and foreign markets, potentially driving further policy and infrastructure optimization [3][7]. - The issuance of dim sum bonds (RMB-denominated bonds issued in Hong Kong) is projected to reach 94.4 billion USD in 2024, indicating a growing market for RMB-denominated assets [8]. - There are expectations for the introduction of a "Swap Connect" to help domestic investors manage interest rate risks associated with offshore bonds, as the current market environment presents significant interest rate volatility [10].

Group 1: Financial Market Developments - The People's Bank of China is actively researching measures to promote the RMB bond market as a global high-quality liquid asset [1] - The central bank aims to enhance cross-border investment and financing convenience, including establishing a one-stop account opening platform for foreign investors [1] - As of May, 835 foreign institutional investors have entered the interbank bond market through the Bond Connect, with a total of 1,169 foreign investors from nearly 80 countries and regions [5] Group 2: Offshore Repo Market Expansion - The PBOC plans to optimize the offshore repo business mechanism under the Bond Connect to facilitate liquidity management for foreign investors [2] - The scope of tradable currencies for offshore repos will expand from RMB to include USD, EUR, HKD, and other currencies [2] - The Hong Kong Central Moneymarkets Unit (CMU) will adopt international practices by removing the freeze on pledged securities to enhance liquidity [2] Group 3: Early Childhood Education Initiatives - Seven departments in China have jointly issued opinions to accelerate the construction of a universal childcare service system, establishing a "1+N" model [3][4] - The "1" refers to a comprehensive childcare service center, while "N" includes various forms of childcare services to meet diverse community needs [3] - The initiative includes providing free or low-cost facilities for childcare services, utilizing existing community resources [4] Group 4: Zero-Carbon Park Development - The National Development and Reform Commission and other departments have issued a notice to support the construction of zero-carbon parks [8][9] - The initiative encourages local governments to provide financial support for zero-carbon projects through special bonds and long-term credit from policy banks [8] - The plan includes promoting renewable energy development and direct green electricity supply models in industrial parks [9] Group 5: AI Industry Support - Hangzhou is soliciting opinions on measures to support the industrialization of brain-like intelligence projects [10] - The city aims to strengthen the innovation chain around the brain-like intelligence industry and support companies in scaling up [10] - The initiative encourages the development of core technological capabilities with independent intellectual property rights [10] Group 6: Government Cloud Market Growth - The IDC report indicates that China's government cloud market is projected to reach 93.94 billion RMB in 2024, with an 18.4% year-on-year growth [11] - The dedicated government cloud market is expected to grow by 19.0%, reaching 66.33 billion RMB [11] - The public government cloud market is anticipated to grow by 12.2%, reaching 17.24 billion RMB [11]

Core Viewpoint - The People's Bank of China (PBOC) announced new measures to enhance the Bond Connect program, particularly the "southbound" channel, to facilitate offshore investors' access to RMB liquidity and strengthen Hong Kong's position as an offshore RMB business center [1][2]. Group 1: New Measures and Optimizations - The PBOC will improve the operational mechanism of the Bond Connect "southbound" channel, allowing more domestic investors to invest in offshore bond markets, expanding the range of domestic investors to include securities firms, funds, insurance, and wealth management institutions [1][2]. - The offshore repurchase business mechanism will be optimized, allowing for multi-currency transactions including USD, EUR, and HKD, and simplifying processes such as the opening of bond accounts [2][5]. - The PBOC plans to introduce cross-border bond repurchase business at an appropriate time, enhancing liquidity management for offshore investors [2][5]. Group 2: Development of Offshore RMB Market - The Hong Kong Securities and Futures Commission aims to develop the fixed income and currency markets, with a focus on RMB fixed income products, increasing the issuance of government bonds in Hong Kong [2][3]. - There is an emphasis on enhancing the liquidity of the secondary bond market and developing more attractive derivative products to diversify risk management tools available in Hong Kong [3][4]. - The establishment of a commercial repurchase market for offshore government bonds is being considered to better utilize these bonds as financing tools and promote secondary market trading [3][4]. Group 3: Future Directions and Infrastructure - The PBOC is actively researching additional measures for the opening of the bond market, aiming to make RMB bonds a globally recognized high-quality liquid asset [5]. - The Hong Kong Monetary Authority will enhance market liquidity and risk management while broadening investment channels [5]. - The development of robust infrastructure for offshore RMB products is crucial for maintaining market stability and providing efficient trading and financing platforms for investors and financial institutions [5].

Core Viewpoint - The expansion of the "Southbound Bond Connect" is expected to enhance the internationalization of the RMB and strengthen Hong Kong's position as a financial hub, while improving the efficiency of trading and settlement mechanisms [2][3]. Group 1: Market Impact - The expansion will inject new liquidity and activity into the Hong Kong bond market, deepening the interconnectivity between domestic and foreign markets [2]. - It will broaden the types of market participants and enrich investment demand [3]. - The integration of rules and products between Hong Kong and mainland bond markets will be promoted [3]. Group 2: RMB Asset Perspective - The expansion is anticipated to increase the demand for RMB-denominated bonds in overseas markets and diversify investment options for RMB assets [3]. - Optimizing the offshore RMB bond repurchase mechanism will enhance liquidity and investment attractiveness of offshore RMB bonds [3]. Group 3: Long-term Outlook - The optimization of the Bond Connect is expected to create a virtuous cycle of market vitality, institutional upgrading, and currency competitiveness, advancing deeper financial opening in China [3]. - Financial regulatory authorities are advised to establish a regulatory framework that matches the level of openness and improve monitoring mechanisms for cross-border capital flows [3].

Group 1 - The report discusses the short covering strategy in the bond market, specifically how the borrowing balance of individual bonds relative to other bonds of the same maturity can lead to downward pressure on interest rates [2][3][19] - The borrowing balance of a specific bond typically follows a pattern where it starts at zero upon issuance, increases as it becomes an active bond, peaks, and then declines as it transitions to a less active status [19][20] - When the borrowing amount of an active bond is significantly lower than that of a less active bond, and if interest rates decline, short sellers of the less active bond will need to cover their positions, leading to additional buying and compression of the yield spread between the two bonds [3][19][20] Group 2 - The report analyzes the practical application of the short covering strategy on key maturities, including 10Y government bonds, 10Y policy bank bonds, and 30Y government bonds, concluding that the 10Y policy bank bond shows the best results [6][31][40] - The 10Y policy bank bond's active bond (250210) switched on May 27, with the less active bond (250205) showing a borrowing amount of approximately 140 billion, which later equalized around 700 billion, while the yield spread compressed from 4-5 basis points to 1.2 basis points [6][31][40] - The analysis indicates that the 30Y government bond's short covering strategy results are less favorable than the 10Y policy bank bond due to greater sensitivity to yield spread expectations and less significant changes in borrowing amounts [40][41]

Summary of Conference Call Records Industry Overview - The records primarily discuss the fixed income market and the broader financial environment in 2025, focusing on monetary policy, liquidity conditions, and credit supply dynamics [1][2][3]. Key Points and Arguments 1. **Monetary Policy Shift**: In Q2 2025, the central bank's monetary policy significantly shifted to align with fiscal policy, leading to a notable decrease in the funding center [1][2]. 2. **Liquidity Pressure**: The upcoming tax period in mid to late July is expected to create liquidity pressure, although the probability of credit growth deviating from macroeconomic trends in Q3 is low [1][4]. 3. **Government Bonds Supply**: The total supply of local government special bonds and national bonds is projected to be between 1.1 to 1.2 trillion yuan, increasing to 1.4 to 1.5 trillion yuan in August and September [1][5]. 4. **Insurance Fund Dynamics**: Due to a slowdown in life insurance premium growth, the demand for pure debt instruments is expected to decrease in the second half of the year [1][6]. 5. **Interest Rate Expectations**: The current interest rate curve is anticipated to shift, with expectations for a rate cut forming after September [1][7]. 6. **Credit Asset Outlook**: New funds are expected to support credit assets in the second half of the year, but low credit spreads may lead to redemptions [3][13]. 7. **Bank Wealth Management Products**: In the first half of 2025, bank wealth management products were primarily allocated to short-term deposits, with a lack of incremental funds [10]. 8. **Market Sentiment**: The overall market sentiment remains optimistic for Q3, despite challenges such as potential redemptions and spread adjustments [14]. Additional Important Insights - **Structural Opportunities**: There is a need to focus on structural opportunities and differences among asset types, particularly in the context of limited credit supply [1][8][6]. - **Trading Activity in Rural Commercial Banks**: Trading activity in rural commercial banks has decreased, with investors focusing more on strategic choices rather than frequent trading due to low interest rates and high volatility [9]. - **Public Fund Performance**: Public funds and other products showed significant performance in May and June 2025, with particular attention on the Sci-Tech Innovation ETF [11][12]. This summary encapsulates the essential insights from the conference call records, highlighting the current state and expectations of the fixed income market and related financial dynamics in 2025.

Summary of Conference Call Records Industry Overview - The conference call discusses the impact of currency fluctuations, particularly the appreciation of the Renminbi (RMB) against the US dollar, on the financial market and liquidity conditions in China. The overall trend indicates a loosening of monetary conditions driven by external factors rather than seasonal variations [1][2][5]. Key Points and Arguments 1. **Monetary Policy and Liquidity** - The People's Bank of China (PBOC) has been guiding liquidity conditions, leading to a significant drop in overnight and 7-day repurchase rates, which are at record lows. This indicates a trend of decreasing funding costs [1][3][4]. 2. **Impact of Currency Appreciation** - The passive appreciation of the RMB is primarily influenced by the depreciation of the US dollar and external economic policies, which have resulted in a more favorable liquidity environment in China [1][5][9]. 3. **Expectations for Future Interest Rates** - There is an expectation that short-term interest rates (DR001 and R007) will continue to decline, potentially reaching levels as low as 1.2. This trend is expected to benefit short-term financial instruments such as certificates of deposit and credit bonds [11][12]. 4. **Market Sentiment and Economic Outlook** - The current liquidity conditions are seen as a positive signal for the economy, with expectations of continued support for the bond market despite a lack of significant improvement in the underlying economic fundamentals [13][14]. 5. **External Factors and Market Dynamics** - The weakening of confidence in the US dollar due to recent US government policies has led to a shift in capital flows towards non-USD currencies, including the RMB. This shift is expected to further influence domestic liquidity and market conditions [8][17]. 6. **Potential for Future Rate Cuts** - If external economic conditions change, the PBOC may need to implement earlier and more substantial interest rate cuts to manage the appreciation of the RMB. Current market pricing does not fully reflect these potential rate cuts [3][16]. 7. **Investor Recommendations** - The period from July to September is anticipated to be favorable for interest rates, with expectations of significant returns across the yield curve. Investors are encouraged to seize opportunities in the upcoming issuance of long-term government bonds [18]. Other Important Insights - The PBOC's recent policy adjustments indicate a more proactive stance on managing exchange rates and liquidity, reflecting a shift in their approach to monetary policy [10]. - The market's optimistic outlook is supported by increased borrowing demand and the stability provided by major banks, despite temporary liquidity tightness observed at the end of the first half of the year [15].