Abstract

During the week of June 3rd to 7th, the First Financial Research Institute's China Financial Conditions Daily Index had an average value of -2.77, a decrease of 0.28 from the previous week and a year-to-date decrease of 1.37. Looking at the components of the index, both the monetary and bond components showed a relaxed trend last week. In terms of monetary indicators, major money market interest rates fell, and the interbank market was abundant in liquidity. Regarding bond indicators, the spread between credit bonds and government bonds continued to narrow. As for stock market indicators, the price-to-earnings ratio of A-shares retreated.

During the week of June 3rd to 7th, liquidity in the interbank market remained stable and abundant, with the volume of repurchase transactions increasing by 1.1 trillion yuan from the previous week to 6.47 trillion yuan. Major money market interest rates fell significantly, with the overnight repurchase rates R001 and DR001 decreasing by 9.03 basis points and 11.06 basis points respectively compared to the previous week. The 7-day repurchase rates R007 and DR007 decreased by 9.51 basis points and 11.17 basis points respectively compared to the previous week. Notably, DR007 fell below the 1.8% policy rate for the first time since January this year, indicating that market liquidity continued the abundant situation from May. Against this backdrop, in the first week of June, the central bank maintained daily reverse repurchase injections at 2 billion yuan. As of June 7th, the total balance of the central bank's open market operations and medium-term lending facilities was 7.18 trillion yuan, a decrease of about 60 billion yuan from the end of May.

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During the week of June 3rd to 7th, both the issuance and net financing of the bond market decreased compared to the previous week. The total issuance of the bond market was 1.39 trillion yuan, a decrease of 537.046 billion yuan from the previous week; the net financing of the bond market was 325.703 billion yuan, a decrease of 955.436 billion yuan from the previous week. Looking at the year-to-date, the issuance pace of local government special bonds this year has been overall delayed, resulting in the current government sector bond net financing accounting for a low proportion of total net financing. As of June 9th, the cumulative net financing of government bonds this year reached 2.34 trillion yuan, accounting for 36.16% of the overall net financing of the bond market, while the same period last year this proportion was as high as 51.42%. From the secondary market perspective, the bull market for interest-bearing bonds and credit bonds continues. The short-term government bond yield trend is greatly influenced by the interbank liquidity. Against the backdrop of loose liquidity, the yield on government bonds with a term of less than one year continues to decline. Credit bond yields have been falling for five consecutive weeks since May, reflecting two possible factors: on the one hand, as credit bond yields decline, the spread between credit bonds and government bonds is also narrowing, and the decline in low-grade credit spreads is greater than that of high-grade credit bonds, which means the improvement of the credit environment in the bond market; on the other hand, financial institutions currently have abundant liquidity, but there are fewer investable assets on the asset side, and the overall volatility of the stock market is high, forcing funds to enter the bond market to seek returns.

During the week of June 3rd to 7th, the total financing of A-shares was 3.103 billion yuan, a decrease of about 5.885 billion yuan from the previous week. Looking at the year-to-date, the cumulative financing of A-shares this year was 16.161 billion yuan, weaker than the same period in previous years. From the secondary market perspective, last week's main A-share indices generally fell, with the Shanghai Composite Index down 1.2%, the SME Index down 0.5%, and the ChiNext Index down 1.3%. The average daily trading volume of A-shares was 766.6 billion yuan, an increase of 4.5% from the previous week. In terms of price-to-earnings ratio, last week's weighted price-to-earnings ratio of A-shares was 14.95, a decrease of 1.5% from the previous week.

Main Text

I. Overview of China's Financial Conditions Index

During the week of June 3rd to 7th, the average value of the First Financial Research Institute's China Financial Conditions Daily Index was -2.77, with a decrease of 0.28 compared to the previous week and a year-to-date decrease of 1.37.

Looking at the components of the index, last week both the monetary and bond components showed a relaxed trend. In terms of monetary indicators, major money market interest rates fell, and the interbank market was abundant in liquidity. Regarding bond indicators, the spread between credit bonds and government bonds continued to narrow. As for stock market indicators, the price-to-earnings ratio of A-shares retreated.

II. Money MarketDuring the week of June 3rd to 7th, interbank market liquidity remained stable and ample, with the volume of pledged repurchase transactions increasing by 1.1 trillion yuan from the previous week to 6.47 trillion yuan. The main money market interest rates showed a significant decline, with the overnight repurchase rates R001 and DR001 each decreasing by 9.03 basis points (bp) and 11.06 bp respectively compared to the previous week. The 7-day repurchase rates R007 and DR007 each dropped by 9.51 bp and 11.17 bp respectively compared to the previous week. Notably, DR007 fell below the 1.8% policy rate for the first time since January of this year, indicating that market liquidity continued the ample situation from May.

Against this backdrop, in the first week of June, the central bank maintained a daily reverse repurchase injection of 2 billion yuan. As of June 7th, the combined balance of the central bank's open market operations and medium-term lending facilities was 7.18 trillion yuan, a decrease of about 600 billion yuan from the end of May.

1. Money Market Transaction Volume and Interest Rates

From June 3rd to 7th, liquidity in the interbank market remained stable and ample. In terms of transaction volume, there was a rebound in the interbank pledged repurchase transactions last week, with the average weekly volume increasing from 5.37 trillion yuan in the previous week to 6.47 trillion yuan.

Looking at the cost of funds, the main money market interest rates declined significantly. In the overnight repurchase rates, the average R001 and DR001 for the week were 1.75% and 1.69% respectively, each falling by 9.03 bp and 11.06 bp compared to the previous week. In the 7-day repurchase rates, the average R007 and DR007 for the week were 1.84% and 1.79% respectively, each decreasing by 9.51 bp and 11.17 bp compared to the previous week. It is worth noting that last week, DR007 fell below the 1.8% policy rate again, with the last time DR007 rates dropped below 1.8% being at the beginning of this year.

Amid ample liquidity, there is almost no issue of liquidity differences between banks and non-bank financial institutions. Last week, the average spread between R007 and DR007 was 4.72 bp.

2. Central Bank's Open Market Operations

In the first week of June, the central bank continued to maintain a low amount of reverse repurchase injections, with a daily injection amount of only 2 billion yuan. Looking at the balance of the central bank's open market operations and medium-term lending facilities, as of June 7th, the total balance was 7.18 trillion yuan, a decrease of about 600 billion yuan from the end of May.

III. Bond Market

From June 3rd to 7th, both the issuance and net financing of the bond market decreased compared to the previous week. Specifically, the total bond market issuance was 1.39 trillion yuan, a decrease of 537.046 billion yuan from the previous week; the net financing of the bond market was 325.703 billion yuan, a decrease of 955.436 billion yuan from the previous week. Looking at the year-to-date, the issuance pace of local government special bonds this year has been generally delayed, resulting in a relatively low proportion of government sector bond net financing in the total net financing. As of June 9th, the cumulative net financing of government bonds this year reached 2.34 trillion yuan, accounting for 36.16% of the overall net financing of the bond market, while the same period last year this proportion was as high as 51.42%.From the perspective of the secondary market, the bull market for interest rate bonds and credit bonds continues. The short-term treasury yield trend is greatly influenced by the liquidity in the interbank market. Against the backdrop of loose liquidity, the yield on treasury bonds with a maturity of less than one year continues to decline. Since May, the yield on credit bonds has fallen for five consecutive weeks, reflecting two possible factors: on one hand, as the yield on credit bonds declines, the spread between credit bonds and treasury bonds is also narrowing, and the decline in low-grade credit spreads is greater than that of high-grade credit bonds, indicating an improvement in the credit environment of the bond market; on the other hand, financial institutions currently have abundant liquidity, but there are fewer investable assets on the asset side, and the overall volatility of the stock market is high, forcing funds to enter the bond market to seek returns.

1. Bond Market Issuance

From June 3 to 7, both the issuance amount and net financing amount of the bond market decreased compared to the previous week. Specifically, the total issuance amount of the bond market was 1.39 trillion yuan, a decrease of 537.046 billion yuan from the previous week; the net financing amount of the bond market was 325.703 billion yuan, a decrease of 955.436 billion yuan from the previous week.

In terms of financing structure, last week's net financing in the bond market was mainly concentrated in the government and financial sectors. Looking at the government sector, last week the net repayment of treasury bonds was 112.23 billion yuan, and the net financing of local government special bonds was 216.984 billion yuan, with the entire government sector having a net financing of 116.099 billion yuan. Looking at the financial sector, last week the net financing of interbank certificates of deposit was 132.14 billion yuan, with policy bank bonds and commercial bank subordinated bonds having net financing of 47.9 billion yuan and 40.3 billion yuan respectively, with the entire financial sector having a net financing of 163.06 billion yuan. Looking at the non-financial corporate sector, last week the net financing of medium-term notes was 66.198 billion yuan, with corporate bonds, corporate bonds, and targeted instruments having net repayments of 6.941 billion yuan, 4.8 billion yuan, and 7.704 billion yuan respectively, with the entire non-financial corporate sector having a net financing of 46.543 billion yuan.

Looking at the year to date, the issuance pace of local government special bonds this year has been generally delayed, resulting in the current government sector bond net financing accounting for a relatively low proportion of total net financing. As of June 9, this year's cumulative net financing amount of government sector bonds reached 234 billion yuan, accounting for 36.16% of the overall net financing of the bond market; the cumulative net financing amount of the financial sector reached 333 billion yuan, accounting for 51.42%; the cumulative net financing amount of the non-financial corporate sector was 80.3776 billion yuan, accounting for 12.42%.

Compared with the same period last year, the overall net financing scale of the bond market this year has expanded significantly. As of June 9, the year-on-year growth rate of the bond balance in the government sector was 15.4%, an increase of 2.8 percentage points from the same period in 2023; the year-on-year growth rate of the bond balance in the financial sector was 12.6%, an increase of 4.1 percentage points from the same period in 2023; the year-on-year growth rate of the bond balance in the non-financial corporate sector was 3.3%, an increase of 5 percentage points from the same period in 2023.

2. Bond Yield Trend

1) Interest Rate Bonds

From June 3 to 7, the yield on treasury bonds of all maturities generally fell. Looking at the short end, influenced by the abundant liquidity in the interbank market, the yield on treasury bonds with a maturity of less than one year generally declined, with the yield on 1-month, 3-month, 6-month, and 1-year treasury bonds falling by 7.99 basis points, 5.05 basis points, 4.35 basis points, and 2.65 basis points respectively from the previous week. Compared with the short end, the yield on medium and long-term treasury bonds is relatively stable, with the yield on 2-year, 5-year, and 10-year treasury bonds falling by 4.13 basis points, 2.44 basis points, and 0.86 basis points respectively, while the yield on 20-year and 30-year treasury bonds rose by 0.41 basis points and 0.22 basis points respectively.

From June 3 to 7, the term spread of treasury bonds increased slightly. As of June 7, the yield spread between 10-year and 1-year treasury bonds was about 67.93 basis points, an increase of 1.8 basis points from the previous week. Looking at the year to date, the term spread of treasury bonds still shows a generally volatile upward trend, with the spread between 10-year and 1-year treasury bonds rising by 20.36 basis points as of June 7 compared to the beginning of the year.2) Credit Bonds

During the week of June 3rd to 7th, the yield on various types of credit bonds continued to decline. Among AAA-rated bonds, the yield on 5-year corporate bonds, corporate bonds, and asset-backed securities decreased by 4.73 basis points (bps), 4.32 bps, and 4.39 bps, respectively. For AA-rated bonds, the yield on 5-year corporate bonds, corporate bonds, and asset-backed securities decreased by 5.33 bps, 7.95 bps, and 4.30 bps, respectively.

The spread between credit bonds and government bonds also decreased in tandem. For AAA-rated bonds, the spread between corporate bonds, corporate bonds, and asset-backed securities and government bonds decreased by 2.29 bps, 1.88 bps, and 1.95 bps, respectively, last week. For AA-rated bonds, the spread between corporate bonds, corporate bonds, and asset-backed securities and government bonds decreased by 2.89 bps, 5.51 bps, and 1.86 bps, respectively.

Since May, the yield on credit bonds has fallen for five consecutive weeks, reflecting two possible factors: on one hand, as the yield on credit bonds slides, the spread between credit bonds and government bonds is also narrowing, and the decline in low-grade credit spreads is greater than that of high-grade credit bonds, indicating an improvement in the credit environment of the bond market; on the other hand, financial institutions currently have ample liquidity, but there are fewer investable assets on the asset side, and the overall volatility of the stock market is high, forcing funds to enter the bond market in search of returns.

IV. Stock Market

During the week of June 3rd to 7th, the total financing amount of A-shares was 3.103 billion yuan, a decrease of approximately 5.885 billion yuan from the previous week. Looking at the year-to-date, the cumulative financing of A-shares this year was 16.161 billion yuan, weaker than the same period in previous years.

From the secondary market perspective, last week, the main A-share indices generally fell, with the Shanghai Composite Index down by 1.2%, the SME Index down by 0.5%, and the ChiNext Index down by 1.3%. The average daily trading volume of A-shares was 766.6 billion yuan, an increase of 4.5% from the previous week. In terms of price-to-earnings ratio, the weighted average P/E ratio of A-shares last week was 14.95, a decrease of 1.5% from the previous week.

1. Primary Market

During the week of June 3rd to 7th, the total financing amount of A-shares was 3.103 billion yuan, a decrease of approximately 5.885 billion yuan from the previous week. Looking at the 4-week rolling average data of A-share financing, since the fourth quarter of last year, A-share financing has been at a relatively low level. Looking at the year-to-date, the cumulative financing of A-shares this year was 16.161 billion yuan, weaker than the same period in previous years.

2. Secondary MarketDuring the week of June 3rd to 7th, the main stock indices in China's A-share market all declined, with the Shanghai Composite Index falling by 1.2%, the SME Board Index falling by 0.5%, and the ChiNext Index falling by 1.3%. Looking at the year-to-date performance, the Shanghai Composite Index has accumulated a 2.6% increase, the SME Board Index has accumulated a 3.8% decrease, and the ChiNext Index has accumulated a 5.8% decrease. Since late February, the market's risk appetite, measured by the year-over-year growth rate of stock indices minus the yield of 10-year government bonds, has shown a trend of fluctuating upward.

In terms of trading volume, the average daily turnover of A-shares last week was 766.6 billion yuan, an increase of 4.5% compared to the previous week. Regarding price-to-earnings ratios, the weighted average P/E ratio of A-shares last week was 14.95, a decrease of 1.5% compared to the previous week. Recently, the difference between the financing and securities lending in the A-share market has decreased to 1.44 trillion yuan, accounting for 1.9% of the total market value of A-shares.