Core Viewpoint - The Bond Connect has reached its eighth anniversary, showcasing significant growth in international participation in China's bond market and announcing new optimization measures to enhance cross-border investment opportunities [1][2][3]. Group 1: Market Growth and Participation - As of May 2025, over 1,169 international investors from more than 70 countries and regions have participated in China's interbank bond market, with foreign institutions holding onshore bonds worth 4.35 trillion yuan, reflecting a compound annual growth rate of approximately 12% over the past five years [1]. - In 2024, the total trading volume of the "Northbound" Bond Connect reached 10.4 trillion yuan, setting a new record, with a year-to-date trading volume of 4.66 trillion yuan as of the end of May, an increase of 205 billion yuan compared to the same period last year [3]. Group 2: New Optimization Measures - The People's Bank of China announced three new measures to enhance the Bond Connect, including improving the "Southbound" mechanism to allow more domestic investors to invest in offshore bond markets, expanding the eligible investor categories to include non-bank financial institutions [3][4]. - The optimization of offshore repurchase business mechanisms will facilitate liquidity management for foreign investors, allowing transactions in multiple currencies such as USD, EUR, and HKD, and simplifying operational processes [5]. - The "Swap Connect" will also be optimized to better meet investors' interest rate risk management needs, with plans to expand the range of products and adjust daily trading limits [5][6]. Group 3: Future Outlook - The Bond Connect is expected to continue serving as a bridge between China's bond market and international investors, promoting the diversification of onshore and offshore RMB product ecosystems [2][8]. - The Hong Kong Monetary Authority emphasizes the importance of these new measures in solidifying Hong Kong's role as an international financial center and offshore RMB hub, enhancing the liquidity of offshore RMB products [8]. - Industry experts anticipate increased inflows of foreign capital, particularly long-term funds, as China's bond market continues to develop and diversify [9].

Group 1 - The core viewpoint of the articles highlights that dovish signals from Federal Reserve officials and uncertainties in the Middle East are influencing traders' decisions in the financial markets [1] - Traders are heavily betting through the options market that the 10-year U.S. Treasury yield will drop to its lowest level since April, indicating complex economic logic and market dynamics [1][3] - A surge in demand for call options on 10-year U.S. Treasuries, particularly those expiring in August, has been observed, with at least $38 million in premiums accumulated recently [3] Group 2 - The recent spike in call options is driven by expectations that the 10-year Treasury yield could significantly decline from approximately 4.3% to 4% in the coming weeks [3] - A notable transaction involved a call option with a strike price of 113.00 (implying a yield of about 4%), costing nearly $10 million, reflecting traders' strong belief in a downward yield trend [3] - The increase in open interest for these options indicates a growing risk exposure in the market, with new long positions being established rather than closing existing short positions [3] Group 3 - Key drivers of this bullish hedge wave include signals from the Federal Reserve, with officials like Waller and Bowman showing support for potential rate cuts as early as July [4] - Despite Fed Chair Powell's cautious stance on monetary policy, traders have increased their bets on rate cuts, with market expectations for a July rate cut rising significantly [4] - Recent macroeconomic data, including unexpectedly weak consumer confidence, has supported traders' bets, pushing the 10-year Treasury yield below 4.3%, marking a new low since early May [5]

Report Industry Investment Rating No relevant content provided. Core Viewpoints of the Report - Negative carry risk has emerged as a significant challenge in the fixed - income investment field due to the global low - interest - rate environment and monetary policy cycle shifts. Overseas experience shows that addressing negative carry is crucial for institutional profitability, risk resistance, and financial system stability. China's asset management institutions can learn from overseas strategies to manage negative carry risks [10][15]. Summary According to the Table of Contents 1. Negative Carry: Impact in Progress - The cause of negative carry usually stems from asset - liability duration mismatch and interest - rate fluctuations. When the liability - side cost rises due to short - term interest - rate hikes or rigid payment pressure, and the asset - side long - term bond yields are locked or decline, institutions face the risk of return inversion [10]. - Overseas experience indicates that negative carry risks typically occur after a long - term low - interest - rate environment followed by a rapid interest - rate increase. For example, after the Fed's 2022 interest - rate hikes, the US banking industry faced "interest - rate increase + negative carry" pressure. In Japan, after the 2016 negative - interest - rate policy, a "interest - rate decrease + negative carry" situation emerged [10][11]. - China's banks and insurance institutions are also facing challenges of high liability - cost stickiness and low asset returns. They are forced to allocate low - yield bonds due to a shortage of high - quality assets, while liability - side costs adjust slowly [13]. 2. How Do Overseas Asset Management Institutions Break the Deadlock? 2.1 Asset - side: Increase Positive Returns - Japanese insurance institutions hedge negative carry pressure by extending asset duration and increasing ultra - long - term bond allocation, using term premiums to offset short - term return inversions [16]. - US commercial banks, with short - term deposits on the liability side, conduct band - trading by accurately predicting interest - rate cycles. They adjust their bond - asset repricing periods and use interest - rate swaps to hedge risks [21]. 2.2 Liability - side: Cost Control - European insurance institutions implement liability - duration matching strategies by issuing long - term policies or deposits to reduce liability - side interest - rate sensitivity. They lock in low - cost funds during interest - rate declines and adjust duration as interest rates change [22]. - Swiss insurance companies attract low - cost liabilities to form a liquidity buffer, using products like non - guaranteed products to reduce costs [24]. - Overseas asset management institutions use derivatives for duration matching and interest - rate risk hedging. For example, UK banks use structural hedging to improve returns and manage risks, and US insurance companies use interest - rate swaps to hedge interest - rate increase risks [30]. 3. What Strategies Can China Use to Address Negative Carry? - In China, banks face a contradiction between slow - growing deposit business and rigid costs, while asset - side fixed - income assets are highly sensitive to interest - rate fluctuations. The end of the negative carry environment depends on the interest - rate policy cycle [37]. - Strategies for China include dynamic duration adjustment, liability - side innovation and cost control, diversified asset allocation, and re - defining bond asset classifications. These strategies can help Chinese asset management institutions actively manage asset - liability linkages and reduce negative carry risks [38].

Core Insights - The "Swap Connect" has seen significant growth in trading volume, with daily transaction amounts increasing from approximately 3 billion RMB to over 22 billion RMB, marking a nearly sevenfold increase since its launch [1] - As of April 2025, 20 domestic quoting institutions and 79 foreign investors have participated, with over 12,000 transactions totaling a nominal principal amount of about 6.5 trillion RMB [1] - The People's Bank of China (PBOC) has introduced further optimization measures, including extending the interest rate swap contract duration to 30 years and expanding the product range to include swaps based on loan market quoted interest rates [1][2] Group 1 - The "Swap Connect" was officially launched on May 15, 2023, providing an efficient tool for managing RMB interest rate risks for domestic and foreign investors [1] - The extension of the interest rate swap contract duration is significant, as previous contracts rarely exceeded 5 years, aligning with the active trading characteristics of 10-year and 30-year government bonds [1] - The optimization measures are expected to enhance liquidity in the market and attract more institutions to participate, catering to diverse trading strategies of foreign investors [1] Group 2 - Previous optimization measures were implemented in May 2024, which included contract compression services and the introduction of swaps with international currency market settlement dates [2] - The ongoing optimization of the "Swap Connect" mechanism is anticipated to promote collaborative development between the financial derivative markets of mainland China and Hong Kong, reinforcing Hong Kong's position as a preferred offshore RMB market for international investors [2] - The PBOC aims to continuously improve related mechanisms to steadily advance the opening of China's financial markets and support the prosperity of Hong Kong as an international financial center [2]

Group 1 - The People's Bank of China, the Hong Kong Securities and Futures Commission, and the Hong Kong Monetary Authority announced enhancements to the "Swap Connect" product types, which were welcomed by the Hong Kong industry [1] - The optimization measures include extending the interest rate swap contract duration to 30 years and introducing interest rate swap contracts referencing the Loan Prime Rate (LPR) [1] - The Hong Kong government supports the continuous optimization of the "Swap Connect" mechanism, aiming to promote the coordinated development of financial derivative markets between mainland China and Hong Kong [1] Group 2 - Bank of China (Hong Kong) stated that the optimization measures will provide greater operational space and diverse options for overseas investors in managing RMB interest rate risks [2] - The Hong Kong Stock Exchange plans to collaborate with the China Foreign Exchange Trade System and the Interbank Market Clearing House to further enrich the product duration and types under "Swap Connect" [2] - The initiatives are expected to enhance the attractiveness of the domestic RMB interest rate derivatives and RMB bond markets [1][2]

Core Viewpoint - The Hong Kong Stock Exchange (HKEX) announced a joint statement from the People's Bank of China, the Hong Kong Securities and Futures Commission, and the Hong Kong Monetary Authority regarding the deepening of "Swap Connect" cooperation, aimed at enhancing the management of RMB interest rate risks for overseas investors [1] Group 1 - The Hong Kong OTC Clearing Limited, a subsidiary of HKEX, will collaborate with the China Foreign Exchange Trade System and the National Interbank Funding Center to enrich the product tenors and types under the "Swap Connect" framework [1] - The optimization measures include extending the interest rate swap contract tenors to 30 years, catering to the diverse risk management needs of market institutions [1] - The product spectrum will be expanded to include interest rate swap contracts referencing the Loan Prime Rate (LPR) [1]

Core Viewpoint - The central bank plans to further enrich the "swap connect" product types to meet diverse risk management needs in the market [1] Group 1 - The contract duration for interest rate swaps will be extended to 30 years [1] - New interest rate swap contracts will be introduced, referencing the Loan Prime Rate (LPR) [1] - Financial market infrastructure institutions in both regions will gradually implement these optimization measures [1]

Core Insights - The "Swap Connect" initiative between mainland China and Hong Kong was officially launched on May 15, 2023, to enhance the financial market's openness and facilitate cross-border RMB interest rate risk management [1] - Since its launch, the trading volume of the "Swap Connect" has been steadily increasing, with over 12,000 RMB interest rate swap transactions completed by 20 domestic quoting firms and 79 overseas investors, totaling a nominal principal amount of approximately 6.5 trillion RMB by the end of April 2025 [1] - Future enhancements to the "Swap Connect" will include extending the contract duration to 30 years and introducing interest rate swap contracts based on the Loan Prime Rate (LPR), aimed at meeting diverse risk management needs of market participants [1] Summary by Categories Market Development - The "Swap Connect" is part of a broader strategy to promote the high-level opening of China's financial market and support the internationalization of the RMB [1] - The initiative aims to improve the willingness of overseas investors to allocate RMB assets by providing more convenient tools for managing RMB interest rate risks [1] Product Innovation - Upcoming optimizations will introduce new product types, including longer-term contracts and swaps referencing the LPR, to cater to the evolving needs of market institutions [1] - Financial market infrastructure institutions in both regions will gradually implement these enhancements [1] Regulatory Collaboration - The People's Bank of China, the Hong Kong Securities and Futures Commission, and the Hong Kong Monetary Authority are collaborating to refine the "Swap Connect" framework based on operational experiences and feedback from domestic and international investors [1]

1. Report Industry Investment Rating No relevant content provided. 2. Core Views of the Report - Multiple departments have introduced a series of measures to support the capital market, including central Huijin increasing ETF purchases, the central bank providing funds, financial regulators raising insurance companies' equity investment ratios, and state - owned assets management departments promoting central enterprises' repurchases and share - increases. These measures send a strong signal to stabilize the stock market [2][11][26]. - Despite short - term market fluctuations caused by factors such as US tariff policies, there are still investment opportunities. In the short term, investors can switch to dividend assets, while in the long term, technology remains the main investment line [22]. 3. Summary by Directory 3.1 Macro Data - GDP growth in Q4 2024 was 5.4% year - on - year, up from 4.6% in the previous quarter [1]. - In March 2025, the manufacturing PMI was 50.5%, up from 50.2% in the previous month; the non - manufacturing PMI was 50.8%, up from 50.4% [1]. - In February 2025, CPI was - 0.7% year - on - year, down from 0.5% in the previous month; PPI was - 2.2% year - on - year, slightly up from - 2.3% [1]. 3.2 Commodity Investment 3.2.1 Comprehensive - Multiple parties are supporting the capital market. Central Huijin will increase ETF purchases, and the central bank will provide funds. Financial regulators and state - owned assets management departments are also taking measures [2]. - The Baltic Dry Index fell 4.21% to 1342 points on Tuesday, down for eleven consecutive days [2]. 3.2.2 Metals - The average price of copper may exceed $4 per pound this year [3]. - As of the end of March, the gold held in London vaults was 8488 tons, a 0.14% month - on - month increase [3]. - On April 8, the price of domestic battery - grade lithium carbonate dropped to 72,300 yuan per ton, a new low in over 6 months [3]. 3.2.3 Energy and Chemicals - OPEC's oil production in March decreased by 110,000 barrels to 26.63 million barrels compared to February [6]. - Saudi Arabia set the official selling price of Arab Light crude oil for Asia in May at a premium of $1.20 over the Oman/Dubai average [6]. - Goldman Sachs predicts that Brent and WTI crude oil prices will fall to $62 and $58 respectively by December 2025, and to $55 and $51 by December 2026 [6]. 3.2.4 Agricultural Products - The June - delivery palm oil on the Malaysia Derivatives Exchange fell 3.4% to 4182 ringgit per ton, the lowest since October 3, 2023 [7]. - Indonesia will adjust the export tax on crude palm oil [7]. - Malaysia's palm oil production from March 1 - 31, 2024 increased by 17.66% [7]. 3.3 Financial News 3.3.1 Open Market - On April 8, the central bank conducted 167.4 billion yuan of 7 - day reverse repurchase operations, with a net investment of 102.5 billion yuan after deducting the maturity of 64.9 billion yuan [9]. 3.3.2 Key News - The Chinese government firmly opposes the US threat to increase tariffs on China and will take counter - measures if necessary [10]. - The central government and relevant departments have introduced measures to support the capital market, urban renewal, and the development of the private economy [11][12][13]. - Multiple cities are researching and preparing policies to stabilize the real estate market [14]. 3.3.3 Bond Market - Bond prices and yields fluctuated. Treasury bond futures closed down, and the yields of major interest - rate bonds in the inter - bank market generally rose [17]. - Some bonds will be fully redeemed, and the credit ratings of some companies have been adjusted [15]. 3.3.4 Foreign Exchange Market - The on - shore RMB against the US dollar closed at 7.3368 on April 8, down 219 points from the previous trading day [21]. - The US dollar index fell 0.51% in New York trading, and most non - US currencies rose [21]. 3.3.5 Research Report Highlights - CICC believes that although there will be short - term fluctuations due to tariff policies, there will be re - entry opportunities after the fluctuations [22]. - CITIC Securities expects wider monetary policies in the future, and the bond market may be approaching a turning point [22]. - CICC Fixed Income believes that in April, the demand for credit bonds may increase, and there may be trading opportunities in long - term high - grade secondary perpetual bonds and ultra - long - term credit bonds [22]. 3.4 Stock Market - The Shanghai Stock Exchange held a symposium with securities institutions to promote the healthy development of the capital market [25]. - Insurance funds are expected to bring 1.66 trillion yuan of incremental funds into the market, and the second - batch private securities fund long - term stock investment pilot of insurance funds is accelerating [25][26]. - Shanghai and Zhejiang state - owned assets management departments have introduced measures to support the repurchase and share - increase of state - owned listed companies [26]. - A - share market has been volatile, and financial institutions and listed companies are taking actions to show confidence in the market [28].