Summary of Key Points from Conference Call Industry Overview - The discussion revolves around the Chinese monetary policy framework, particularly focusing on the short-term interest rate corridor and its implications for the bond market [1][3]. Core Insights and Arguments - **Monetary Policy Framework**: China has established a monetary policy framework based on the 7-day reverse repo rate as the benchmark policy rate and DR007 as the benchmark market rate. The reform in March aimed to simplify the coexistence of multiple policy rates [1][3]. - **Interest Rate Corridor**: The current interest rate corridor has an upper limit set by the Standing Lending Facility (SLF) rate, which is 100 basis points higher than the 7-day reverse repo rate, and a lower limit set by the Interest on Excess Reserves (IOER) rate, fixed at 0.35%. This results in a width of 205 basis points, providing flexibility but complicating the clarity of policy signals [1][3]. - **Potential for Narrowing the Corridor**: The central bank may narrow the interest rate corridor through new tools or reforms to existing tools, aiming to reduce volatility in benchmark market rates like DR007. This approach is similar to the Federal Reserve's use of Open Market Operations (OMO) and Interest on Reserves Balances (IORB) to manage liquidity [1][4]. - **Ideal Characteristics of the Rate Corridor**: An ideal short-term interest rate corridor should effectively control the volatility of market benchmark rates, possess a flexible and transparent adjustment mechanism, and include a wide range of participants, including commercial banks and non-bank institutions [5]. Implications for the Bond Market - **Impact of Narrowing the Corridor**: Narrowing the short-term interest rate corridor is expected to significantly reduce funding volatility, positively impacting the bond market. Investors would focus more on central bank actions and long-term trends rather than frequent liquidity analysis [6][7]. - **Liquidity Premium on Deposits**: If China achieves a price-based control similar to that of the U.S., the liquidity premium on certificates of deposit may decrease, leading to a downward shift in the bond yield curve. Strategies may include focusing on short-duration credit bonds or extending the duration of high-grade credit bonds [2][7]. - **Market Strategy Adjustments**: In a volatile market, strategies should be adjusted based on risk appetite, deposit yields, and liquidity changes, waiting for better trading windows [7]. Other Important Considerations - **Central Bank's Role**: The central bank's ability to implement precise liquidity injections and new tools is crucial for enhancing the effectiveness of monetary policy transmission and supporting the real economy [4][5]. - **Comparison with U.S. Practices**: The discussion draws parallels with the Federal Reserve's practices before and after the 2008 financial crisis, suggesting that similar strategies could be beneficial for China's monetary policy framework [5].

Report Summary 1) Report Industry Investment Rating No industry investment rating is provided in the report. 2) Core Viewpoints of the Report - The adjustment of the 14D OMO reverse - repurchase tender method can better stabilize the short - end fluctuations of the yield curve and maintain the abundance of bank system liquidity [2]. - It is expected that 14D OMO operations will be more frequent than before, and the first 14D OMO operation after the change of the tender method may be carried out on September 22, 2025 [2]. - Attention should be paid to real - time DR and CD interest rates rather than privately inquired winning bid rates of 14D OMO, as the latter contains limited monetary policy information and is often lagging [3]. - Moderately narrowing the interest rate corridor can reduce DR fluctuations and improve the efficiency of interest rate regulation, and currently, there are basic conditions to narrow the interest rate corridor by moderately reducing the SLF interest rate [3][4]. 3) Summary by Relevant Catalogs Event - On September 19, 2025, the People's Bank of China announced that, starting from that day, the 14 - day reverse - repurchase operation in the open market would be adjusted to fixed - quantity, interest - rate tender, and multi - price winning bids [1]. Comment - The 7D OMO interest rate is the main policy interest rate in China. The new combination of 7D OMO (fixed - interest, quantity tender) and 14D OMO (fixed - quantity, interest - rate tender, multi - price winning bids) can better stabilize the short - end fluctuations of the yield curve and maintain the abundance of bank system liquidity [2]. - It is expected that 14D OMO operations will be more frequent than in previous years, not limited to before the Spring Festival and National Day. The first 14D OMO operation after the change of the tender method may be carried out on September 22, 2025. In the future, some investors may be interested in privately inquiring about the winning bid rate of 14D OMO, but these rates contain limited monetary policy information, and attention should be paid to real - time DR and CD interest rates [2][3]. - 7D and 14D OMO are the "new partners" for maintaining liquidity abundance, and the interest rate corridor is the "old assistant" for suppressing short - end fluctuations. Moderately narrowing the interest rate corridor can reduce DR fluctuations and improve the efficiency of interest rate regulation. There are two ways to narrow the interest rate corridor: the natural compression when the 7D OMO interest rate and SLF decline together, and the reduction of the spread of the SLF interest rate above the OMO interest rate [3]. - Currently, there are basic conditions to narrow the interest rate corridor by moderately reducing the SLF interest rate. From May to August 2025, the SLF operation volume was much smaller than the inter - bank pledged repurchase trading volume. The minimum value and 10% quantile of the spread between the 7D SLF and DR007 from early 2024 to September 19, 2025, were at a moderate and relatively large level [4].