Text On July 18, the central bank guided banks to increase allocation of low-rated credit bonds at the window: "The central bank recently guided banks to provide additional MLF funds to support loan issuance and credit bond investment.

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July 18, according to the 21st Century Business Herald, the central bank window guided banks to increase allocation of low-rated credit bonds: "It is reported that the central bank recently guided banks to provide additional MLF funds to support loan issuance and credit bond investment. For loan issuance, the additional increase is required to be given MLF funds at 1:1 compared with the beginning of the month. The additional increase is ordinary loans, and bills and interbank loans are not encouraged. For credit bond investment, AA and above ratings are given MLF at a ratio of 1:1. AA The following ratings are given to MLF funds at 1:2, and the requirements must be industrial and financial bonds do not meet the requirements." On the same day, the China Banking and Insurance Regulatory Commission held a symposium on banking financial institutions, aiming to clear the monetary policy transmission mechanism and do a good job in financing for private enterprises and small and micro enterprises. The meeting pointed out that the difficulty and high cost of financing for private and small and micro enterprises are still prominent in the period, and banking financial institutions should do a good job in serving private and small and micro enterprises. Why has

such a major change in the policy? Our comments are as follows:

, why do we predict and look at the right direction first?

In the "Risk Trio - Time and Tools" on June 25, we pointed out that there are currently three major risks to be exploded in the credit bond market, and the core of the solution is to encourage banks to support the issuance and loans of medium and low varieties, and even guide banks to require low- and medium-level varieties to do MLF. The central bank's policy innovation this time can be said to be very much higher than market expectations, but it is indeed one of the options with the least policy resistance in the context of the embarrassing liquidity structure of the financial market, the credit creation layering, and the embarrassing divergence between currency and credit.

The reason why we can judge the policy innovation of the central bank in advance is the following 4 points: (1) is that on June 1, the central bank has included AA and AA credit bonds in MLF qualified collateral, indicating that the central bank is very concerned about the current liquidity of medium and low-grade credit bonds that is close to depletion. (2) From the perspective of MLF operation process, through bidding, the central bank negotiates quantity and prices with commercial banks, which is a space for the central bank to provide window guidance to commercial banks; (3) There are precedents for small and medium-sized enterprise loans with relatively high pledge risks in MLF operations to encourage commercial banks to participate more in small and medium-sized enterprise credit. (4) MLF (medium-term lending facility) is equivalent to a commercial bank pledging assets to the central bank and obtaining financial support. It does not transfer ownership of assets legally. It is not a direct expansion or purchase of balance sheets by the central bank in accounting. It is completely different from the nature of the Fed's direct purchase of "toxic assets" such as MBS and ABS when the United States responded to the financial crisis. In the current legal framework and financial regulatory framework, there is no resistance to provisions.

is further expanded. So what are the economic fundamentals and core backgrounds of the financial market for such operations? And this determines what the next step in policy innovation will be.

, the core contradiction of the economy this year: currency expansion and credit contraction

We believe that the current core contradiction of the economy is effective, but the exposure of various risks is close to the threshold. In the July 13th "Policy Forecast and Rediscussion on the Path of Deleverage - Mean Regression of the Triple Tightening of Monetary, Fiscal and Regulatory" we pointed out that the essence of deleveraging is the continuous tightening of the three major macro-control policies of monetary, fiscal and regulatory for two years.

Currently, various indicators show that deleveraging has been effective. The problem of idleness of the financial system has been well solved; the debt expansion of real estate companies and financing platforms has been restricted in the crackdown; from the perspective of social financing, M2 and macro leverage ratio, the leverage of the physical sector has also been curbed. The problem of high leverage of state-owned enterprises that has troubled the past has gradually improved with the recovery of the income statement.

However, various risks are undercurrents, and the triple tight macro policies face certain fine adjustments. The shrinking of non-standard and entrusted loans has led to the decline of social financing balances below the 10% range year-on-year. The sharp shrinkage of non-standards has brought about the current financing difficulties of financing platforms, the pressure of centralized redemption and refinancing of private enterprises, the risk of small and medium-sized banks, the sharp rise in the marginal burden of residents' debt and the decline in social retail consumption. We see risks seem to be exposed little by little.The cycle of tightening or loosening in history is often a time window for fiscal currency for about 2 to 3 years. This round is not only tightening, but also tightening supervision and tightening, which ultimately presents a rare three tightening pattern. If it lasts longer, it may be an unbearable burden for the economy. If external factors continue to face worse than expected, it will undoubtedly add to the insult to the various entities in the economy, so this is the inherent reason why the monetary level has been slightly loose in the past quarter.

However, the monetary level care is still the central bank's single battle. Many prerequisites for credit expansion from currency to have not been met at present. From a macro perspective, we believe that the credit expansion of the whole society requires the expansion of the public sector to lead and boost confidence. The premise of credit expansion of the public sector is that the rare tightening of fiscal policy returns to a stable neutrality, and the efforts of fiscal policy depend on the return of the source of fiscal funds, which requires the issuance of general bonds and special bonds of local governments, and the marginal loosening of trust non-standard financing.

So there are not many core tools that the central bank, which is most concerned about the sun and rain of the real economy, can use. The central bank began to constantly call for and introduce various means to reduce corporate financing costs and boost the credit expansion of entities last year, but it is still difficult to say that it is embarrassing. This is also what we pointed out in the June 28 "Why can't the reserve requirement cut save the economy": There are problems with the economic structure at this stage. Under strict supervision and loose monetary policy, the reserve requirement cut cannot directly lead to credit expansion.

Although treating the symptoms of credit expansion in the whole society requires upgrading the problem to a higher level, at least for the current vision and risks of the bond market and the credit bond market, the central bank can still set some examples and actions. So, what is the core contradiction in the current bond market?

, the core contradiction in the bond market at present: interest rate bonds rise while credit bonds fall

The market currently has no differences in optimistic expectations for interest rate bonds, but it is still quite pessimistic about the credit bond market. cannot see buying, transactions in land volume, ugly level, exposed credit risks, maturity payments of many celebrity issuers, etc. Therefore, the current strange phenomenon of 's bond market is that the interest rates of treasury bonds and securities bonds continue to break downward, while the medium and low-level credit bond curve remains flat or even widens. The overall transaction volume of has also produced many strange micro transactions. For example, the 18 New Big 02 was hit by a land transaction of 2,800 yuan to a net price of 28 yuan, and the 16 Xiwang 02 fell sharply to a net price of 65 yuan during the session. On the one hand, it reflects the potential problems of the exchange trading system, and is also a catalytic reflection of the current risk aversion sentiment in the bond market that is too high and has almost no liquidity. The redemption and maturity of the outsourcing continue. Based on the divergence between various interest rates and credits above, most investors in the credit bond market cannot see the power and possibility of trend turning points.

But we have always been on the right side opportunity after the credit bond market is about to come. At present, there are several major risks to be exploded in the credit bond market:

(1) The risk of default for medium and low-grade industrial bonds. We believe that in terms of scale and time, August is a time to be vigilant. We estimate that in the future, issuers with 50 to 60 billion yuan in secondary market valuations will be under pressure to expire/exercise rights renewal. When the capital market is tight, they will face issuance difficulties and cancel the issuance situation. If individual companies experience risks, it will also lead to a poor overall subscription sentiment for credit bonds.

(2) type platform pressure is non-standard. In August, the impact of non-standard shrinkage will be realized, and problems in urban investment liquidity in a certain area may intensify this awareness. The most important liquidity problem of urban investment is that non-standard investment is difficult to continue. Many urban investment incidents at the beginning of the year were caused by non-standard investment. Because non-standard compression is rigid in the bank side, the product can only be continued when it expires. It is expected that if the policy remains unchanged, the new social financing contribution from trust loans will total about 120 billion yuan per month. The year-on-year weakening of the social financing balance has been shown, and the year-on-year reduction of the trust volume on the weakening of the social financing balance was finally reflected in August, and is expected to be close to 0% year-on-year.

(3) The stock market fell, and the entities with excessive equity pledge close to the closing line and the credit risk increased feedback. If the stock market falls continuously, it will affect the credit risk of issuers who hold groups - listed companies and have more group bonds issued. We counted that companies/groups that meet high beta, high pledge rate, low implied ratings, and pledged shares are close to the upper limit of holders, may be around 50 pairs. If there is a chain reaction, the impact effect cannot be underestimated.

(4) Small and medium-sized rural commercial banks face the capital adequacy ratio that does not meet the regulatory standards, and there are obstacles to shareholder capital increase, which affects the renewal of secondary capital bonds and certificates of deposit, and impacts the valuation of related varieties and even liquidity risks. Since the beginning of this year, many rural commercial banks have experienced downgrades, and there are three reasons. (1) Asset side: Remedy for the cross-regional operations of rural commercial banks, and rural commercial banks are forced to face asset contraction; (2) Liability side: off-balance sheet and interbank supervision continues to advance, and interbank liabilities are significantly lost, resulting in a contraction of the liability level and an increase in costs; (3) Profitability and asset quality: Most rural commercial clients are local private enterprises and county-level urban investment platforms in the local area. The huge debt extension pressure on private enterprises this year, and the pressure of non-standard refinancing of urban investment companies has further deteriorated the asset quality and recovery speed of rural commercial banks. Of course, the market believes that banks will not experience systemic risks, and we believe that this is the final result and ignore the process. If a bank's regulatory indicators fail to meet the standards, coupled with the difficulty of renewing subscription of certificates of deposit and secondary capital bonds, private shareholders are willing to increase capital and expand their shares but are unable to do so, short-term liquidity problems may arise.

So we see that all kinds of risks are gathering. August is likely to be approaching the storm, and policy innovation will continue to accelerate on the eve of the storm. htmlIn August, about 70 billion issuers with higher secondary valuations face pressure from maturity/exercise renewal. The performance of social financing due to the shrinking of non-standards may be worse, but the last drop in risk is to accelerate policy innovation, implementation and bottom-up. The core of policy innovation is still to encourage the motivation of commercial banks to take over low-grade credit bonds on the balance sheet. Then the market still has concerns. In the past, banks did not buy AA and AA credit bonds on the balance sheet. Why would they buy them in the future?

, how much does it cost and impact to encourage banks to subscribe to AA+ and AA on the balance sheet?

(1) The bottom line is not very expensive to occupy and cost the banking system funds. We calculate that the banking system contributes 20-30 billion to the marginal subscription of new credit bonds, which can drag down the current light first-level and weak second-level, while to 5 large banks and 12 joint-stock banks, each of which only needs to pay about 1.5 billion yuan in marginal funds every month, which can be said to be very cost-effective, so there is no problem that banks have no money to participate.

(2) Banks have a certain motivation to take over the bonds of important customers who are their own loans through their own operations. In the past two months, we have seen a new phenomenon in the primary market. The upstream and downstream interest communities of credit bonds are grouped together to save themselves: (1) The main lending banks of some issuers have increased their balance underwriting efforts to alleviate the liquidity difficulties of issuing bonds at maturity; (2) Insurance companies have strategically invested in real estate companies, achieving win-win interests by exchanging time for space and equity for bonds. So we see what it may mean in the custody data in June. Commercial banks' marginal increase in credit bonds by 49.1 billion.

(3) The yield of medium and low-grade bonds is considerable, the risk is lower than that of small and medium-sized enterprise credit, and it is included in MLF qualified collateral, and the cost-effectiveness is not low. We often use past concepts to judge the future, believing that commercial banks have no motivation to subscribe to medium and low-grade credit bonds. We believe that the interest rate spread of medium and low-grade credit bonds in the past is relatively narrow, and they cannot be used as qualified collateral, and there is no advantage in risk provisioning. The internal FTP of banks' internal FTP is very low for self-operation, so there is no need to take risks. However, the current interest rate spreads of medium and low-grade, and they can be used as MLF collateral. The marginal improvement of bank risk provisioning has not deteriorated, so this type of asset is actually not low for self-operation, and it is also profitable from a commercial perspective.

(4) To revitalize the liquidity of the credit bond market, it does not need to match the credit bond balance, but only needs to match the amount of credit bond transactions.The market may believe that the current credit bond market stock has a scale of several trillion, and new issuances with a scale of several tens of billions per month are a drop in the bucket for the overall market, and we believe that this is not the case. Just like the stock market, the core factor that raises a certain stock is not the stock market value but the circulating market value of the stock and the average daily trading volume of the stock. At present, the liquidity of the bond market is very poor. A small incremental capital can revitalize the market. The ground-based credit bond market without liquidity does not need funds matching the existing quota to revitalize. On the contrary, the transactions of some controversial celebrity issuers in the exchange market are often affected by transactions of thousands or tens of thousands, affecting the valuation of billions of stocks. We believe that, by providing a tiny bottom-up, the return of liquidity of credit products is just around the corner.

(5) Bond varieties do not distinguish between municipal bonds and industrial bonds, but only emphasize that they cannot be bonds issued by financial enterprises. We believe that it not only supports urban investment liquidity, but also supports the liquidity of private enterprises, which can be said to kill two birds with one stone.

. The China Banking and Insurance Regulatory Commission continues to protect private enterprises and small and micro enterprises.

On July 17, the China Banking and Insurance Regulatory Commission held a symposium on banking financial institutions, aiming to clear the monetary policy transmission mechanism and do a good job in financing for private enterprises and small and micro enterprises. The meeting pointed out that the difficulty and high cost of financing for private and small and micro enterprises are still prominent in the period, and banking financial institutions should do a good job in serving private and small and micro enterprises.

The spread of credit risks has also brought about in-depth discussions on the credit issues of small and micro enterprises in the market. We believe that in the future, there will be more and more policies to support the liquidity of small and micro enterprises. From January to June 2018, a total of 34.5 billion yuan of new small and micro enterprise bonds were added, far lower than the 57.29 billion yuan in the same period last year, a year-on-year decrease of 39.78%. In the current context of imbalance in the liquidity structure of the financial system, interbank financing of small and micro enterprises needs policy support. The main loan banks for small and micro enterprises are small and medium-sized banks such as urban commercial banks, rural commercial banks, and rural credit cooperatives. Against the current unbalanced liquidity structure of the financial system, it is difficult for small and micro enterprises to indirectly finance from small and medium-sized banks to raise funds. Especially during the period of bank liquidity tightening and credit tightening, banks are becoming cautious in choosing lending targets, and small and micro enterprises with poor ability to repay principal and interest are more needed for credit support from joint-stock banks and even regional financial institutions. Therefore, the policy level is paying close attention to this and has been constantly calling for and implementing relevant policies since last year. We believe that the implementation in the second half of the year will be faster.

, Future policy innovation prospects: currency → regulation → finance → credit

The person who tied the bell needs to solve the bell. The central bank does its best to fight alone. Monetary policy seeks changes through innovation, and it is urgently necessary to cooperate with other policies to enter the market. Looking forward to the second half of the policy, we believe there will be structural changes, and the average return will be made along the route of currency → regulation → finance → credit. Currently in the transition stage from currency to regulation, we are trying to outline the steps:

(1) Currency and the central bank: on the one hand, we encourage the subscription of medium and low-grade credit bonds on the balance sheet, and on the other hand, we can also provide liquidity targeted support for bank AICs to supplement ammunition. The central bank's aforementioned targeted reserve requirement ratio cut for the purpose of debt-to-equity conversion is probably not just an excuse and reason. We believe that listing is possible at the operational level. Targeted funds flow into commercial banks. Banks can expand their balance sheets by increasing capital and expanding their shares, purchasing debt-to-equity conversion special bonds of AIC subsidiaries, and expanding their balance sheets in the form of equity and bonds. At the same time, the investment in equity and bonds on the AIC asset side is relatively flexible. In the context of the fact that debt-to-equity conversion has not yet been fully implemented, there are no substantial obstacles to subscribing to low- and medium-grade credit bonds in line with their own risk preferences.

goes a step further, off-balance sheet credit creation is hindered, and the speed of on-balance sheet credit creation can be increased by loosening on-balance sheet credit creation constraints. Currently, financial supervision has ideal control over off-balance sheet, but it has only blocked the side door and has not loosened the main door: the various capital constraints imposed on on-balance sheet credit creation still continue the past standards, while the standards for on-balance sheet capital constraints in the past are more based on the historical experience ratio of calibration between the on-balance sheet and the off-balance sheet.At this stage, the off-balance sheet is basically stuck. The experience ratio of capital constraints calibrated based on historical data may not meet the current endogenous currency creation needs. Therefore, we believe that reducing on-balance sheet capital constraints and increasing on-balance sheet currency-credit creation speed and creation channels is likely to be the next policy innovation with less resistance.

(1) Supervision: Replace traditional non-standard channels through financial investment companies and bank-affiliated asset management companies, provide liquidity support to the real economy, and even participate in debt-to-equity conversion through mixed stocks and bonds; the bank asset management department has officially transformed into an independent legal entity asset management company, reducing the risk impact of its own assets on the banking system, and policy innovation alleviates the problem of renewal of medium and low-level credit bonds; the window guidance of trust financing has been relaxed marginally.

(2) Finance: The marginal relaxation of trust financing and the boost of demand for medium and low-grade bond allocation in banks are important prerequisites to alleviate the embarrassing financing environment of financing platforms, so the order is also after supervision. The increase in financing for general and special bonds of local governments also requires the marginal relaxation of liquidity in the banking system. The solution to the problem of broad funding sources of local governments is also an important prerequisite for whether infrastructure can recover.

(3) Credit: The overall fiscal growth from tightening to neutrality is the prerequisite for the expansion of the public sector; the expansion of the public sector is the condition to drive the credit expansion of the whole society; from monetary expansion to credit expansion, it takes about half a year to a year, so we place credit expansion after monetary expansion and fiscal expansion. Solving the problems of financing and credit expansion of private enterprises also requires the effective achievement of the above steps.

We judge that the policy’s subsequent statement is likely to focus on keywords such as risk prevention, stabilizing domestic demand, credit expansion, etc., and weaken the leverage and supervision issues that have been more frequent in the past.

Bond market and major asset strategies

Monetary policy accelerates innovation, macro-level is to solve the old problem of poor transmission from monetary expansion to credit expansion, and micro-level is to solve the new problems of divergence between interest rate bonds and credit bonds and the continuous accumulation of credit risks in the bond market. From the policy goals to the results, we believe that it can improve the sluggish liquidity of the credit bond market and alleviate the current situation of widening low-level credit spreads. If other innovative policies are implemented one after another, we believe that this node is likely to be the eve of the last turning point in August we predicted earlier. We can be more optimistic about the credit bond market in advance.

Innovation

Innovation refers to the behavior that is guided by the existing thinking model and proposes insights that are different from conventional or ordinary people's ideas, and uses existing knowledge and materials to improve or create new things, methods, elements, paths, and environments in a specific environment based on idealized needs or to meet social needs, and can achieve certain beneficial effects.

Innovation, abbreviated as CX, Innovation is a conceptual process characterized by new thinking, new inventions and new descriptions. It originated in Latin and has three meanings: first, update; second, create new things; third, change.

Innovation is the unique cognitive ability and practical ability of mankind, a high-level manifestation of human subjective initiative, and an inexhaustible driving force for promoting national progress and social development. If a nation wants to be at the forefront of the times, it must not be without innovative thinking for a moment, nor can it stop all kinds of innovations. Innovation plays a vital role in research in the fields of economy, technology, sociology, and architecture.

In essence, innovation is the externalization and materialization of the blueprint of innovative thinking.

In addition, for benchmark interest rates, this round of innovation is more to alleviate credit problems rather than interest rate problems, and will not cause a positive or negative impact on the margin of interest rate bonds. Because from the perspective of the circulation market, the current trading volume of credit bonds is very small for interest-rate bonds, so the structure will not have an incremental impact on interest-rate bonds. Overall, we expect that the 10-year treasury bond yield will fluctuate in the range of 3.4%-3.6%. We believe that the exchange rate of

may continue to show depreciation pressure. The marginal easing of domestic monetary policy may widen the interest rate gap between China and the United States, especially the United States is in the interest rate hike range. We believe that monetary policy is more important to the domestic power than the weight of the exchange rate, so the exchange rate may face certain depreciation pressure. In addition, although we believe that this round of policy innovation is completely different from the Federal Reserve's QE, overseas investors are likely to compare with the US QE based on their own experience, which is to a certain extent unfavorable to the stability of the RMB currency value and will also produce certain depreciation sentiment.

One of the negative factors that suppress the stock market - credit risk. The marginal improvement channel is also conducive to the mitigation of stock market risks. If the policy moves along the future direction of currency → regulation → fiscal → credit, our overall macro policy orientation will also be relatively positive and optimistic. We will also see an improvement channel for a negative factor that suppresses the stock market, that is, credit risk.

Credit bond comments

Market interest rate: Market interest rate (market interest rate/market rate) is a true reflection of the cost of market funds lending, and indicators that can promptly reflect short-term market interest rates include interbank lending rates, treasury bond repurchase rates, etc. The interest rates of newly issued bonds are generally designed according to the market benchmark interest rates at that time. Generally speaking, rising market interest rates will cause the prices of bond fixed income products to fall, stock prices will fall, the real estate market and foreign exchange market will fall, but the savings income will increase.

Rating Follow

(1) [Boyuan Holdings: "13 Boyuan MTN001" cannot repay the principal and interest in full on time]

On July 18, Boyuan Holdings announced that it failed to raise the full repayment funds as agreed, and "13 Boyuan MTN001" cannot repay the principal and the last interest in full on time. "13 Boyuan MTN001" has been completely acquired by Cinda Asset. In the future, the overall solution for all existing bonds will be completed and gradually implemented with the help of Cinda Asset. (News source: Inner Mongolia Boyuan Holding Group Co., Ltd.)

Related bonds: 13 Boyuan MTN001

(2) [*ST Kaidi: Overdue debt total 3.179 billion yuan]

On July 18, *ST Ecology announced that as of July 17, the currently overdue debt totaled 3178.9715 million yuan, accounting for 29.90% of the audited net assets of the latest period.

announced that the company is currently actively communicating with creditors, and some creditors have reached an agreement with the company to alleviate debt default problems, agreeing to help the company resume production and operations quickly, and some power plants have resumed production. In the future, the company will further communicate with creditors, and the company will also cooperate with the establishment of a creditors committee to seek various debt settlement plans. (News source: Kaidi Ecological Environment Technology Co., Ltd.)

Related bonds: 16 Kaidi 02, 16 Kaidi 03, 16 Kaidi 01, 11 Kaidi Bond

(3) [Liuzhou City Investment: PR Liucheng Investment closed down 12.66% to 60 yuan, and the intraday drop was temporarily suspended]

On July 18, PR Liucheng Investment closed down 12.66% to 60 yuan, and the intraday drop was temporarily suspended. The Shanghai Stock Exchange announced that trading will be suspended from 10:45 and trading will be resumed from 11:15. PR Liucheng Investment fell 22.13% to 53.5 yuan before the suspension of trading. (News source: Liuzhou Urban Investment Construction Development Co., Ltd.)

Related bonds: PR Liuchengtou

(4) [ Yongtai Energy : The controlling shareholder signed a strategic cooperation agreement with China Development Bank and several commercial banks]

On July 18, Yongtai Energy announced on the evening of July 18 that the controlling shareholder Yongtai Group Co., Ltd. , China Minsheng Bank Co., Ltd. , Ping An Bank Co., Ltd. and Shanghai Bank Co., Ltd., reached a strategic cooperation intention and established a comprehensive strategic cooperation relationship.(News source: Yongtai Group Co., Ltd.)

Related bonds: 18 Yongtai Group SCP001, 18 Yongtai Energy MTN001, 18 Yongtai Energy PPN001, 17 Yongtai Energy PPN003, 17 Yongtai Energy MTN002, 15 Yongtai Energy MTN002, 17 Yongtai Energy MTN001, 17 Yongtai Energy PPN002

(5) [*ST Kaidi: 1.119 billion pledged shares of the controlling shareholder fell below the closing line]

On July 18, *ST Kaidi announced on the evening of July 18 that due to the continued decline of the stock, the number of shares pledged by the controlling shareholder Sunshine Kaidi has increased; as of now, the 1.11914 billion pledged shares have fallen below the closing line. (News source: Kaidi Ecological Environment Technology Co., Ltd.)

Related bonds: 16 Kaidi 02, 16 Kaidi 03, 16 Kaidi 01, 11 Kaidi Bond

(6) [Shengyun Environmental Protection: Deputy General Manager Resigns]

On July 18, Shengyun Environmental Protection announced that the deputy general manager resigned. (News source: Anhui Shengyun Environmental Protection (Group) Co., Ltd.)

Related Bonds: 18 Shengyun Environmental Protection SCP001

(7) [Changde Dingcheng Jiangnan New City Construction Investment Development: Delaying the issuance of "18 Changding New City Bond 01"]

On July 18, Changde Dingcheng Jiangnan New City Construction Investment and Development Co., Ltd. announced that due to the recent large fluctuations in the bond market, in order to reasonably reduce the issuance interest rate and control the company's financing costs, the company decided to postpone the issuance of this bond period, and the specific issuance time will be determined separately. (News source: Changde Dingcheng Jiangnan New City Construction Investment and Development Co., Ltd.)

Related bonds: 18 Changding Xincheng Bond 01

(8) [ Taizhou New Binjiang Development: Cancel the issuance of the first phase of short-term financing bonds in 2018]

On July 18, Taizhou Xinbinjiang Development Co., Ltd. announced that due to market fluctuations, the company decided to reissue the first phase of short-term financing bonds in 2018 at a time, with a scale of 100 million yuan. (News source: Taizhou Xinbinjiang Development Co., Ltd.)

Related bonds: 18 Taizhou Binjiang CP001

(9) [ Hejiang County Fuyang Guotou: The "16 Hejiang Fuyang Bond" holders' meeting reviewed and passed the proposal for the replacement of some land mortgage assets]

On July 18, Fuyang Guotou, Hejiang County announced that the "16 Hejiang Fuyang Bond" holders' meeting was held recently, and the meeting reviewed and passed the proposal for the replacement of some land mortgage assets on the "16 Hejiang Fuyang Bond". (News source: Luzhou Fuyang Investment Group Co., Ltd.)

Related bonds: 16 Hejiang Bond/16 Hejiang Fuyang Bond

(10) [China Shipbuilding Industry Group: General Manager Change]

On July 18, China Shipbuilding Industry Group Co., Ltd. announced that the general manager had changed. (News source: China Shipbuilding Industry Corporation Co., Ltd.)

related bonds: 17 China Shipbuilding 02, 16 China Shipbuilding 02, 17 China Shipbuilding 01, 12 China Shipbuilding MTN3, 12 China Shipbuilding MTN1, 16 China Shipbuilding 01, 12 China Shipbuilding MTN2

(11) [Tianjin Ninghe Investment Holdings: Supervisor changes]

On July 18, Tianjin Ninghe Investment Holdings Co., Ltd. announced that supervisors had changed. (News source: Tianjin Ninghe Investment Holdings Co., Ltd.)

Related bonds: 16 Ningtou Bond

Convertible Bond Comments

July 18, the convertible bond market closed at 79.36 points, down 0.50%, and the convertible bond index closed at 102.27 points, up 0.15%. 74 listed tradable convertible bonds, except for Tiehan convertible bonds and electrical convertible bonds suspended trading, 48 rose and 24 fell. Among them, Taijing convertible bonds (2.99%), Jinnong convertible bonds (2.51%), and Dow convertible bonds (1.77%) led the rise, while Xingyuan convertible bonds (-1.72%), Wanxin convertible bonds (-1.22%) and Yongdong convertible bonds (-1.17%) led the decline. In addition to Tiehan Ecology and Shanghai Electric, 74 convertible bond stocks were suspended, including Sanlishi, Aoyang Shunchang , Haiyin Co., Ltd., Everbright Bank , and Jiangnan Water Affairs Horizontal, 17 rose and 50 fell. Among them, Taijing Technology (5.69%), Zhongxin Tourism (5.30%) and Shengyi Technology (2.96%) led the rise, while Dingxin Communication (-5.40%), Xinquan Co., Ltd. (-3.13%) and Crystal Optoelectronics (-3.13%) led the decline.

This Wednesday, the Shanghai and Shenzhen stock markets changed in the same direction. The Shanghai Composite Index fell 0.39% at the end of the trading session, and the Shenzhen Component Index fell 0.97%. The convertible bond market benefited from the pullback of underlying stocks and recorded a slight increase. The trend of individual bonds with sufficient elasticity was eye-catching, and the logic that the strong will always be strong is still continuing. Last week, we clearly reminded us to be more optimistic about the convertible bond market, and the market performance is basically in line with our expectations.It is undeniable that the overall market elasticity is not at its best position. From the recent performance of individual bonds, we can also find that only a few low premium rate targets fully enjoy the rebound of underlying stocks and recorded good returns. The increase of most poor elastic targets is not sufficiently attractive. We judge that this core logic will continue in the short term. This week we want to introduce new thinking, namely the reference value of consensus expectations for the convertible bond market. As of last week, we observed that most institutions turned from idle to bullish stock markets and their sentiment was optimistic, and subsequent market performance also confirmed the marginal improvement of investor sentiment, and the changes in the underlying stock market directly drove the performance of convertible bonds. We explain it from the logic behind it. Previous basic research series has shown that the upward space of convertible bonds is limited compared to the limited upward space, and therefore consensus expectations are more meaningful. When the market reaches an agreement, sentiment must have directional changes, and the convertible bond market is more sensitive to it at this time. Especially for traditional fixed income investors, they tend to be risk aversion, and consistent expectations can be used as auxiliary indicators to grasp market sentiment. At the operational level, we believe that the changes in endogenous sentiment in stocks and bond markets can be grasped from top to bottom. If the stock market improves marginally, the convertible bond targets are expected to benefit from the rebound of underlying stocks and the expansion of premium rates to earn excess returns. Implemented at the specific strategic level, in the short term, market sentiment is still in an upward channel and the trend is expected to remain. Specific target suggestions are focused on Dongcai convertible bonds, Sany convertible bonds, Guozhen convertible bonds, Jichuan convertible bonds, Qianhe convertible bonds, Chongda convertible bonds, Xingyuan convertible bonds, Shuanghuan convertible bonds, Tianma convertible bonds, Xinquan convertible bonds and bank convertible bonds with better liquidity.

Risk warning: The performance of individual bond-related companies is lower than expected.

Interest rate bond

On July 18, 2018, the weighted rate of inter-bank pledge repurchase increased and fell, and changed overnight, 7 days, 14 days, 21 days and 1 month respectively, -7.83BP, -1.76BP, 5.91BP, -2.48BP, -34.94BP to 2.48%, 2.66%, 2.96%, 3.16%, and 2.89%. The yields of treasury bonds rose and fell on the same day, with 1-year, 3-year, 5-year and 10-year treasury bonds changing by 2.49BP, 0.49BP, -0.51BP, -1.00BP to 3.05%, 3.24%, 3.30% and 3.47% respectively. The Shanghai Composite Index fell 0.39% to 2787.26, the Shenzhen Component Index fell -0.97% to 9195.24, and the ChiNext Index fell -0.85% to 1607.88.

July 18, 2018 People's Bank of China carried out a reverse repurchase operation of 80 billion yuan through interest rate bidding.

[Dynamic Monitoring of Liquidity] We track market liquidity and observe the "investment and collection" of liquidity since the beginning of 2017. In terms of incrementality, we calculate the total investment based on the scale of reverse repurchase, SLF, MLF and other central bank open market operations, treasury cash fixed deposits, etc.; in terms of reduction, we calculate the total daily liquidity based on the March 2018 comparison of the M0 in December 2016 by 438.88 billion yuan, the cumulative foreign exchange deposits decreased by 447.32 billion yuan, and the cumulative fiscal deposits increased by 556.24 billion yuan. It roughly estimates the liquidity of residents' cash withdrawals, foreign occupation declines and tax loss, and considering the maturity of open market operations, and calculate the total daily liquidity reduction. At the same time, we monitor the expiration of open market operations.

(Note: In January 2018, the People's Bank of China carried out standing lending facilities operations for financial institutions totaling 25.45 billion yuan, of which 3.18 billion yuan was 3.5% in seven days, and the interest rate was 3.5%; 22.27 billion yuan was 3.85% in one month. In February 2018, the People's Bank of China carried out standing lending facilities operations for financial institutions totaling 27.38 billion yuan, of which 150 million yuan was overnight, and the interest rate was 3.35%; 10.5 billion yuan was 3.5% in seven days, and the interest rate was 16.73 billion yuan was 3.85%. As of the end of February, the balance of standing lending facilities was 21.34 billion yuan. In 2018, the balance of standing lending facilities was 21.34 billion yuan. In March, the People's Bank of China carried out a total of 54.06 billion yuan of standing lending operations for financial institutions, of which no overnight standing lending operations were carried out, with an interest rate of 3.40%; 21.72 billion yuan in 7 days, with an interest rate of 3.55%; 32.34 billion yuan in 1 month, with an interest rate of 3.90%. As of the end of March, the balance of standing lending facilities was 48.21 billion yuan. In April 2018, the People's Bank of China carried out a total of 46.7 billion yuan in standing lending facilities for financial institutions, of which 1 billion yuan overnight, with an interest rate of 3.4%; 35.5 billion yuan in 7 days, with an interest rate of 3.55%; 10.2 billion yuan in 1 month, with an interest rate of 3.9%. As of the end of April, the balance of standing lending facilities was 39.06 billion yuan.In May 2018, the People's Bank of China carried out standing lending facilities operations for financial institutions totaling 34.76 billion yuan, of which 12 billion yuan overnight was 3.4%; 12.16 billion yuan in 7 days was 3.55%; 10.6 billion yuan in 1 month was 3.9%. As of the end of May, the balance of standing loan facilities was 22.76 billion yuan. )

convertible bond

market dynamics

bond market

derivatives market

foreign exchange market

overseas market

source: Mingxi Bi Talks

Author: CITIC Securities Mingming Research Team