Report Industry Investment Rating No relevant information provided. Core Viewpoints - After the Fed cut interest rates in September, the U.S. Treasury yields have risen for two consecutive weeks. The better - than - expected economic growth and employment data have reduced the need for the Fed to cut interest rates significantly and decreased market expectations for subsequent rate cuts, pushing up the U.S. Treasury yields [1][2]. - The negotiation deadlock between the Republican and Democratic parties over the government financing legislation draft may lead to a U.S. government shutdown in October. However, the market has largely priced in this situation, and the impact on the bond market is expected to be minor [1][3]. - Although the U.S. dollar risk - free rate continued to rise last week, Chinese - funded U.S. dollar bonds were still supported by the narrowing spread and showed general stability. In the on - shore market, due to the approaching National Day holiday and the end of the quarter, the pressure on inter - bank liquidity increased, pushing up short - term interest rates. After the National Day holiday, the pressure on inter - bank funds is expected to ease, which will drive down short - term Treasury yields [1][3][4]. Summary by Related Catalogs Offshore Market - Last week, there were 6 new issuances of Chinese - funded U.S. dollar bonds exceeding $100 million, totaling approximately $1.4 billion, mainly financial bonds and urban investment bonds. Offshore RMB bonds had new issuances of about RMB 61 billion, mainly driven by the issuance of RMB 60 billion central bank bills by the People's Bank of China [2]. - The 10 - year and 2 - year U.S. Treasury yields rose 5 and 7 basis points respectively to 4.18% and 3.64% last week. The U.S. second - quarter real GDP annualized quarterly - on - quarter final value increased by 3.8%, the fastest growth rate in nearly two years. As of the week ending September 20, the number of initial jobless claims in the U.S. decreased by 14,000 to 218,000, the lowest level since July [2]. - The Bloomberg Barclays Chinese - funded U.S. dollar bond total return index fell slightly by 0.1% last week, with the spread narrowing by 2 basis points. Among them, the high - rating index fell 0.1%, and the spread narrowed by 3 basis points; the high - yield index remained flat, and the spread was basically unchanged [3]. On - shore Market - Last week, the People's Bank of China net - withdrew short - term liquidity of RMB 822.3 billion through reverse repurchase maturities and net - injected long - term funds of RMB 30 billion through MLF renewals. The 7 - day deposit - type institutional pledged repurchase weighted average rate and the 7 - day inter - bank pledged repurchase weighted average rate rose 5 and 12 basis points respectively to 1.56% and 1.64%. The 3 - year and 10 - year Treasury yields rose 2 basis points and remained flat respectively at 1.54% and 1.88% [4]. Recent New Issuances of Chinese - funded U.S. dollar Bonds - Newly issued bonds include those from companies such as New Metro Global Limited, Longkou Urban Construction Investment and Development Co., Ltd., and Ping An Insurance Overseas (Holding) Company Limited, with different coupon rates, issuance amounts, and ratings [6]. Appendix: List of Chinese - funded U.S. dollar Bonds - The appendix provides detailed information on a large number of Chinese - funded U.S. dollar bonds, including issuers, guarantors, coupon rates, issuance amounts, prices, ratings, etc. The issuers cover banks, state - owned enterprises, and urban investment companies [18][20].

Report Summary 1. Report Industry Investment Rating The document does not mention the industry investment rating. 2. Core Viewpoints - On July 8, 2025, the PBOC will improve the Bond Connect "Southbound Link" mechanism and expand the scope of domestic investors to include four types of non - banking institutions: securities firms, funds, insurance companies, and wealth management institutions [3][4]. - Attention should be paid to the choice of the Southbound Link's custody model, offshore RMB liquidity, and the progress of domestic bond replacement of overseas bonds. After the Southbound Link expansion, the yields of different types of and maturities of Chinese overseas bonds have shown differentiation, and the subsequent implementation of the expansion policy may support further decline in yields [3]. 3. Summary by Relevant Catalogs 3.1 Southbound Link Custody Model - Domestic investors can choose between the multi - level direct connection custody model (through domestic bond registration and settlement institutions) and the global custody model (through domestic custody and clearing banks) to custody bond assets. The global custody model has a wider range of investable bonds [5][6]. - As of August 21, 2025, the RMB - denominated bonds held in CMU accounted for 75% of the total outstanding balance of Chinese overseas bonds, but the proportion of bonds denominated in other currencies held in CMU was generally low. The multi - level direct connection custody model has relatively limited bond selection [8]. 3.2 Offshore RMB Liquidity - Currently, the offshore RMB funding situation is generally loose, and the risk of liquidity tightening is relatively controllable. As of August 21, the 3M CNH HIBOR was at a historical low, and the 1Y CNH - CNY swap spread has returned to near zero [3][10]. - Attention should be paid to the issuance rhythm of offshore RMB central bank bills in the second half of 2025. If the issuance accelerates and tightens offshore RMB liquidity, it may hinder the compression of spreads of offshore RMB bonds [3][13]. 3.3 Progress of Domestic Bond Replacement of Overseas Bonds - Since the issuance of Document No. 134, there have been cases of domestic bond replacement of overseas bonds, but there are still barriers. The number of replacement cases is limited, and the issuers who can achieve replacement mostly meet the requirements for new domestic bonds. Whether this can further reduce the credit risk of local government financing vehicle (LGFV) overseas bonds needs further observation of regulatory attitude changes [3][14][17]. 3.4 Recent Performance of Overseas Bonds - As of August 21, 2025, the static coupon of Chinese US - dollar bonds was generally higher than that of offshore RMB bonds, and the yield of Chinese US - dollar bonds declined more significantly than on July 8, showing stronger performance. However, investment in Chinese US - dollar bonds needs to consider factors such as greater valuation fluctuations, larger exchange - rate risk exposure, and hedging costs [3][27]. - For offshore RMB bonds, the yields of sovereign bonds and policy - financial bonds of different maturities have mostly been adjusted, while the yields of industrial bonds and LGFV bonds have mostly declined to varying degrees. The implementation of the Southbound Link expansion policy may support further decline in the yields of Chinese overseas bonds [27].

Group 1 - The People's Bank of China and the Hong Kong Monetary Authority announced multiple measures to optimize and expand the Bond Connect "Southbound" scheme, including the inclusion of non-bank financial institutions such as brokerages, insurance companies, and asset management firms [1] - The expansion of the "Southbound" scheme is timely given the asset allocation challenges faced by mainland financial institutions, and it holds significant implications for the development of non-bank institutions and the long-term stability of both mainland and Hong Kong bond markets [1] Group 2 - The expansion broadens asset allocation channels for non-bank institutions, enhancing their global asset allocation capabilities. Previously, these institutions relied on the Qualified Domestic Institutional Investor (QDII) scheme, which had limited quotas and lengthy approval processes. The "Southbound" scheme acts as a "highway" for investing in overseas bonds, improving overall investment yield flexibility [2] - As of July 10, the yield on China's 10-year government bonds was 1.68%, while Hong Kong's was 2.99%, and the U.S. was 4.34%, indicating significant yield differentials that can optimize asset allocation [2] Group 3 - The expansion helps stabilize the mainland bond market and alleviates unilateral volatility caused by supply shortages. As of May, the bond market's custody balance in China reached 187.2 trillion yuan, ranking among the world's largest. The "Southbound" scheme acts as a "pressure relief valve" for the demand side of the mainland bond market, balancing supply and demand [3] - The annual total quota for the "Southbound" scheme is set at 500 billion yuan, with a variety of options available in the Hong Kong bond market, including Hong Kong dollar bonds and offshore RMB bonds [3] Group 4 - The expansion is expected to attract medium- to long-term funds into the Hong Kong bond market, enhancing trading liquidity. A broader and more active investor base will create a more attractive financing environment for international investors and issuers [4] - The diverse investment strategies and flexible trading models of non-bank institutions will significantly enhance the price discovery function and trading activity in the offshore RMB bond market, promoting the growth of the offshore RMB asset pool [4] - The expansion is anticipated to reshape the cross-border asset allocation ecosystem for mainland non-bank institutions, fostering the prosperity of both bond markets and advancing the internationalization of the RMB [4]