1. Report Industry Investment Rating - Not provided in the report 2. Core View of the Report - The economic recovery's internal driving force remains unstable, with the January official manufacturing PMI falling below expectations and the economy's upward foundation being unsteady. There is still room for reserve - requirement ratio cuts and interest rate cuts, but the timing of overall easing may be postponed after structural interest rate cuts. The bond market is expected to continue its volatile trend, and the long - term strategy is to buy on the dips [11][13][14] 3. Summary by Relevant Catalogs 3.1 Monthly Assessment and Strategy Recommendation - **Economic and Policy**: In January, the official manufacturing PMI dropped to 49.3, lower than expected. Production and demand declined, and enterprise profit margins may be under pressure. The export orders decreased, large enterprises were in the expansion range, and small and medium - sized enterprises were in the contraction range. The service industry in the non - manufacturing sector declined due to the off - season, and the construction industry's prosperity significantly dropped. Overseas, the US liquidity improved, and the market postponed the expectation of the Fed's interest rate cut to mid - year. The central bank held a meeting to develop various types of finance and support key areas. The RatingDog manufacturing PMI in China rose to 50.3, maintaining an expansion trend. The Australian central bank raised interest rates by 25 basis points [11] - **Liquidity**: The central bank conducted 10055 billion yuan in reverse repurchases and 8000 billion yuan in outright reverse repurchases this week, with 17615 billion yuan in reverse repurchases and 7000 billion yuan in outright reverse repurchases maturing, resulting in a net withdrawal of 6560 billion yuan. The DR007 rate closed at 1.48% [13] - **Interest Rates**: The latest 10 - year Treasury bond yield was 1.82%, up 0.59 BP week - on - week; the 30 - year Treasury bond yield was 2.27%, down 1.25 BP week - on - week; the latest 10 - year US Treasury bond yield was 4.21%, down 5.00 BP week - on - week [13] - **Summary**: The January official PMI data showed a decline in both supply and demand, and the economic recovery's momentum needs to be observed. There is still room for reserve - requirement ratio cuts and interest rate cuts, and the central bank will maintain a stable capital situation. The bond market's allocation power is strong, but the market is expected to continue to fluctuate [13] - **Fundamental Assessment**: The economic fundamentals need further improvement, and the net basis is low. The bond market's downward adjustment space is limited, and the long - term strategy is to buy on the dips [14] - **Trading Strategy Recommendation**: The recommended strategy is to buy on the dips for a 6 - month period, with a profit - loss ratio of 3:1, driven by loose monetary policy and difficult credit improvement [15] 3.2 Futures and Spot Markets - **T Contract**: Presented the closing price, annualized premium, settlement price, and net basis trends of the T - contract's current - quarter and main contracts [18] - **TL Contract**: Showed the closing price, annualized premium, settlement price, and net basis trends of the TL - contract's current - quarter and main contracts [23] - **TF Contract**: Displayed the closing price, annualized premium, settlement price, and net basis trends of the TF - contract's current - quarter and main contracts [26] - **TS Contract**: Demonstrated the closing price, annualized premium, settlement price, and net basis trends of the TS - contract's current - quarter and main contracts [28] - **TS and TF Positions**: Presented the closing price and position volume trends of the TS and TF contracts [33] - **T and TL Positions**: Showed the closing price and position volume trends of the T and TL contracts [38] 3.3 Main Economic Data 3.3.1 Domestic Economy - **GDP and PMI**: In Q3, 2025, the actual GDP growth rate was 4.8%, exceeding expectations. In January 2026, the manufacturing PMI was 49.3%, down 0.8 percentage points from the previous value, and the service industry PMI was 49.5%, down 0.2 percentage points [43] - **Manufacturing PMI Sub - items**: In January 2026, the manufacturing supply and demand weakened. The production index decreased by 1.1 percentage points to 50.6%, and new orders decreased by 1.6 percentage points to 49.2 [44][49] - **Price Index**: In December 2025, the CPI increased by 0.8% year - on - year, the core CPI increased by 1.2% year - on - year, and the PPI decreased by 1.9% year - on - year. The month - on - month CPI, core CPI, and PPI all increased by 0.2% [52] - **Export Data**: In December 2025, China's export data was stronger than expected, with exports increasing by 6.5% year - on - year and imports increasing by 5.7% year - on - year. Exports to the US decreased by 30.0% year - on - year, while exports to ASEAN maintained a high growth rate [55] - **Industrial Added Value and Retail Sales**: In December 2025, the industrial added - value growth rate was 5.2% year - on - year, and the year - on - year growth rate of total retail sales of consumer goods was 0.9%, down 0.4 percentage points [58] - **Fixed - Asset Investment and Real Estate**: From January to December 2025, the cumulative year - on - year growth rate of fixed - asset investment was - 3.8%, and the real estate investment growth rate was - 17.2%. In December 2025, the month - on - month price of second - hand housing in 70 large and medium - sized cities was - 0.7%, and the year - on - year price was - 6.1% [62] - **Real Estate Construction and Sales**: In December 2025, the cumulative value of new housing starts was 587700,000 square meters, with a cumulative year - on - year decrease of 20.4%. The cumulative value of new housing construction was 6598900,000 square meters, with a cumulative year - on - year decrease of 10.0%. The cumulative year - on - year data of the completion end decreased by 18.16%, and the new - home sales data in 30 large - and medium - sized cities was weak [65][68] 3.3.2 Foreign Economy - **US Economy**: In Q3 2025, the US GDP at current prices was 3109.5 billion US dollars, with an actual year - on - year growth rate of 2.33% and a quarter - on - quarter growth rate of 4.30%. In December 2025, the US CPI increased by 2.7% year - on - year, and the core CPI increased by 2.6% year - on - year and 0.0% month - on - month. In November 2025, the US durable goods orders were 323.7 billion US dollars, with a year - on - year increase of 12.29%. In December 2025, the seasonally adjusted non - farm payrolls increased by 50,000, and the unemployment rate was 4.4%. In January 2026, the US ISM manufacturing PMI was 52.6, and the non - manufacturing PMI was 53.8 [71][74][77] - **EU Economy**: In Q3 2025, the EU GDP increased by 1.4% year - on - year and 0.3% quarter - on - quarter [77] - **Eurozone Economy**: In December 2025, the Eurozone CPI increased by 2% year - on - year. In January 2026, the preliminary manufacturing PMI was 49.4, and the service industry PMI was 51.9 [80] 3.4 Liquidity - **Money Supply and Social Financing**: In December 2025, the M1 growth rate was 3.8%, and the M2 growth rate was 8.5%. The M1 growth rate declined due to the base effect. The social financing increment was 2.21 trillion yuan, with a year - on - year decrease of 645.7 billion yuan. The new RMB loans were 9700 trillion yuan, with a year - on - year decrease of 800 billion yuan [85] - **Social Financing Sub - items**: In December 2025, the year - on - year growth rate of government bonds in social financing slowed down, and the financing of the real - economy sector was stable. The social financing growth rate of the household and enterprise sectors was 6.1%, and the government bond growth rate was 17.1% [88] - **MLF and Reverse Repurchases**: In January 2026, the MLF balance was 6950 billion yuan, with a net MLF injection of 700 billion yuan. This week, the central bank conducted 10055 billion yuan in reverse repurchases and 8000 billion yuan in outright reverse repurchases, with 17615 billion yuan in reverse repurchases and 7000 billion yuan in outright reverse repurchases maturing, resulting in a net withdrawal of 6560 billion yuan. The DR007 rate closed at 1.48% [91] 3.5 Interest Rates and Exchange Rates - **Interest Rate Changes**: Provided the latest rates, daily, weekly, and monthly changes of various types of interest rates, including repurchase rates, Treasury bond yields, and US Treasury bond yields [94] - **Interest Rate Trends**: Presented the trends of Treasury bond yields, bank - to - bank pledged repurchase rates, US Treasury bond yields, and the bond yields of the UK, France, Germany, and Italy [98][99][103] - **Fed Target Rate and Exchange Rates**: Showed the trends of the Fed's target rate, the USD/RMB exchange rate, and the US dollar index [105]

Report Summary 1. Investment Rating There is no specific industry investment rating provided in the report. 2. Core View The bond market is expected to continue its oscillating trend. Considering the weak fundamental situation, a slightly bullish stance is recommended for unilateral trading, with the suggestion to lightly position long on T contracts on dips. In terms of arbitrage, it is advised to stay on the sidelines for the short - term after closing the short position on the 30Y - 7Y term spread (TL - 3T) mid - week. Attention should be paid to potential cash - and - carry arbitrage opportunities in the next - quarter bond futures contracts [5][6]. 3. Summary by Directory First Part: Weekly Core Points Analysis and Strategy Recommendation - **Market Analysis**: This week, the bond futures market showed some divergence. Some market participants pre - speculated on the central bank's treasury bond trading information for this month, leading to relatively stronger performance in the short - to - medium - term. Meanwhile, foreign media reports on real - estate incremental policies suppressed long - term sentiment, with the TL contract declining more in the second half of the week. The actual progress, specific intensity of real - estate policies, and the source of fiscal subsidy funds are unknown, making it difficult to drive a trend - upward in yields. Market expectations for interest - rate cuts are weak, and capital prices continue to constrain the downward movement of yields [5]. - **Strategy Recommendation** - **Unilateral Trading**: Adopt a slightly bullish approach and lightly position long on T contracts on dips [6]. - **Arbitrage**: After closing the short position on the 30Y - 7Y term spread (TL - 3T) mid - week, stay on the sidelines in the short - term. For inter - delivery - month arbitrage, also enter a wait - and - see mode as the liquidity of the current - quarter contracts will gradually decline next week. Pay attention to potential cash - and - carry arbitrage opportunities in the next - quarter bond futures contracts, as their valuations are relatively high, mostly above 1.7% [5]. Second Part: Relevant Data Tracking - **Economic Data** - **EPMI**: In November, China's Strategic Emerging Industries Purchasing Managers' Index (EPMI) was 52.7, down 7.0 percentage points from the previous month. Although the decline was significant, it remained in the expansion range. EPMI and the official manufacturing PMI usually have high synchronicity in trends, but they diverged last month, indicating significant differences in the prosperity of different domestic industries. With the slowdown in the expansion of emerging industries in November, the recovery momentum of this month's PMI may still be weak [10]. - **Capital Market** - **Funding Conditions**: This week, affected by tax payments and a still - high net financing scale of government bonds, the market funding situation tightened first and then eased. As of Friday's close, DR001 and DR007 were 1.3209% and 1.4408% respectively. The overnight and 7 - day non - bank funding spreads were 6.68bp and 5.44bp respectively. The one - year certificate of deposit issuance rate of joint - stock banks slightly rose to around 1.65%. Next week, the net financing scale of government bonds will continue to decline, but approaching the end of the month, the funding situation will face some temporary disturbances. With the central bank's consistent supportive attitude, the upward range of market funding prices is expected to be relatively limited [12][16][17]. - **Term Spread**: Since Wednesday this week, the 30Y - 7Y term spread has widened again. On one hand, after the spread approached 40bp, there was a lack of substantial positive drivers, and the momentum for further compression was insufficient. Some funds pre - speculated on the central bank's treasury bond trading information for November and preferred to go long on medium - term treasury bonds. On the other hand, foreign media reported on Thursday that the policy level was considering providing mortgage subsidies to new home buyers nationwide in the future, which was more bearish for the long - term. If the mortgage subsidy policy is finally implemented, it will help balance the cost of home purchases and the rent - to - sale ratio for residents, and the probability of the central bank cutting interest rates will decrease accordingly, which is negative for the bond market. However, the details of relevant policies are unknown, so the bond market is not expected to over - price in advance [18][19][25]. - **Arbitrage Indicators** - **Inter - delivery - month Arbitrage**: In the past two weeks, the indicators for potential inter - delivery - month arbitrage opportunities during the roll - over period of the T contract triggered two short - term long - trading signals, but the indicator became neutral starting on Thursday, presumably related to the significant increase in long positions in the next - quarter T contract on that day. As next week is the last week before the delivery month, it is recommended to enter a wait - and - see mode for inter - delivery - month arbitrage [5][26][29]. - **Cash - and - carry Arbitrage**: Calculated based on the ChinaBond valuation and futures settlement prices, the implied repo rates (IRR) of the current - quarter contracts of TS, TF, T, and TL are 1.3226%, 1.0132%, 1.4099%, and 1.2732% respectively. The IRR of the next - quarter contracts of TS, TF, T, and TL are 1.6583%, 1.7361%, 1.7706%, and 1.7469% respectively, with relatively high valuations [34]. - **Roll - over Progress**: This week, the roll - over of the main contracts accelerated significantly. As of Friday's close, the roll - over progress of the TS, TF, T, and TL contracts was 69.2%, 63.2%, 63.7%, and 64.8% respectively [35].

Core Viewpoint - The People's Bank of China (PBOC) has announced the resumption of government bond trading operations, indicating a continuation of a loose monetary policy and coordination with fiscal debt issuance [1][2][3] Group 1: Event Overview - On October 27, 2025, PBOC Governor Pan Gongsheng stated that the bond market is currently operating well, leading to the decision to resume open market operations for government bonds [2] - The timing of the resumption slightly exceeded market expectations, resulting in a rapid decline in bond yields following the announcement [2] Group 2: Event Analysis - The resumption of government bond trading is aligned with a proactive fiscal policy and a continuation of a moderately loose monetary policy, as discussed in a recent meeting between the Ministry of Finance and the PBOC [3] - The necessity for resuming bond trading has increased due to the maturity of the previous round of bond purchases, which totaled 1 trillion yuan from August to December 2024, with approximately 700 billion yuan maturing by the end of September [3][6] Group 3: Market Conditions - The bond market has undergone sufficient adjustments, with interest rates returning to a relatively reasonable range after a significant upward shift in the yield curve since the beginning of the year [6] - The current market conditions provide a favorable environment for the resumption of government bond trading, as the short-end interest rates have shown significant recovery [12] Group 4: Trading Strategy - The resumption of government bond trading is expected to have a positive impact on the bond market, reducing adjustment risks in the short term [10] - It is recommended to lower the hedging ratio for those who previously used government bond futures for short hedging, while maintaining long positions in the TS2512 contract and exploring opportunities in the TF contract [10]

Group 1: Report Information - Report Title: "TS Contract: Can It Still Be Used for Cash-and-Carry Arbitrage? - Interest Rate Weekly (Week 3 of May)" [1] - Report Date: May 19, 2025 [2] - Chief Analyst: Yan Ziqi, with a practice certificate number of S0010522030002 [2] - Research Assistant: Hong Ziyan, with a practice certificate number of S0010123060036 [2] Group 2: Industry Investment Rating - No industry investment rating is provided in the report. Group 3: Core Views - Since the implementation of reciprocal tariffs on April 3, the bond market's maturity yields have first decreased and then increased. Among treasury bond futures, the TL contract has been strong, while the TS/TF/T main contracts have declined [2]. - The weak performance of the TS contract is due to the previous large premium and the change in the expectation of loose monetary policy. The market's expectation of loose monetary policy changed significantly in Q1, and there are differences in the short - term expectation of loose monetary policy after the double - cut in May. The yield curve has flattened instead of steepening as expected [3]. - As of May 16, the basis of the TS main contract is - 0.07 yuan, and the IRR is 1.79%. The basis has significantly converged, and the IRR is close to the capital interest rate, so the cost - effectiveness of cash - and - carry arbitrage is insufficient [4]. - In the short term, the TS contract may still be in a premium state because of the continuous negative carry. The inversion between R001 and the 2 - year treasury bond maturity yield has decreased from about 60bp at the beginning of the year to 15bp on May 16, and the negative carry phenomenon of some varieties will continue [4]. - Considering that the tight capital situation in Q1 will not repeat, the short - term interest rate has a ceiling and the probability of a sharp decline is low. With the significant convergence of the basis, one can consider participating in the possible rise of the TS contract [4]. Group 4: Analyst and Research Assistant Introduction - Analyst Yan Ziqi is the assistant director of the Research Institute of Hua'an Securities and the chief analyst of fixed income. He has 8 years of experience in sell - side fixed income and equity research, and has won the second place in the 2024 Wind Gold Analyst and the best analyst in the 2023 Choice fixed income industry [12]. - Research Assistant Hong Ziyan is a master of financial engineering from the University of Southern California, covering macro - interest rates, institutional behavior, and treasury bond futures research [12].