Abstract

During the week of June 17th to 21st,the First Financial Research Institute's China Financial Conditions Daily Index had an average value of -2.63,which was an increase of 0.19 compared to the previous week,and a decrease of 1.25 for the year.Looking at the components of the index,the tightening of the interbank market liquidity last week was the main factor driving the index upward.In terms of monetary indicators,the main money market interest rates rose last week,indicating a tightening of market liquidity.From the bond market perspective,the yields on long-term interest rate bonds and credit bonds continued to decline.Regarding stock market indicators,the price-to-earnings ratio fell.

During the week of June 17th to 21st,the interbank market liquidity tightened,which was mainly reflected in the decline of the interbank repurchase transaction volume and the rise of money market interest rates.Last week,the overnight repurchase rate increased significantly,with the average of R001 and DR001 rising by 15.24 basis points and 14.74 basis points respectively compared to the previous week.There may be two factors behind the marginal tightening of liquidity in the interbank market: First,as the end of June approaches,financial institutions usually face strict regulatory assessments at the end of the quarter,and we expect the phenomenon of tight liquidity to continue until the end of June.Second,the bond issuance volume in the interbank market last week increased significantly compared to the previous week,leading to higher demand for funds and higher interest rates.Against this backdrop,the central bank correspondingly expanded the scale of reverse repurchase operations last week,with a total of 398 billion yuan injected through reverse repurchase operations.On June 19th,when attending the Lujiazui Forum,the central bank governor Pan Gongsheng stated that China's monetary policy is supportive,providing financial support for the continuous and upward trend of the economy.In terms of macroeconomic regulation,the central bank will grasp and handle the relationship between three aspects: First,the relationship between the short term and the long term,considering the maintenance of price stability and promoting a moderate rise in prices as an important factor,while maintaining policy determination.Second,the relationship between stable growth and risk prevention,balancing support for the growth of the real economy and the prevention and resolution of financial risks.Third,the relationship between internal and external factors,mainly considering the needs of the domestic economic and financial situation for regulation,and taking into account the spillover effects of external economies and policies.

During the week of June 17th to 21st,both the bond market issuance and net financing significantly increased compared to the previous week.The total bond market issuance was 2.3 trillion yuan,an increase of 908.398 billion yuan from the previous week; the net financing of the bond market was 650.142 billion yuan,an increase of 570.642 billion yuan from the previous week.Looking at the financing structure,the bond issuance of the government and financial sectors accelerated last week,driving a significant increase in the net financing of the entire bond market.Among the government sectors,the issuance of government bonds last week reached 491.9 billion yuan,with a net financing of 229.24 billion yuan.From the secondary market perspective,the yields on short-term and long-term government bonds showed a divergent trend last week.Affected by the tightening of the interbank market liquidity,the yields on government bonds with a maturity of less than one year generally rose last week.In addition,with the release of the economic data for May,the year-on-year growth rate of several key economic indicators has declined compared to April,leading to a continuous decline in long-term government bond yields.Last week,the yields on 5-year,10-year,and 30-year government bonds fell by 1.78 basis points,2.06 basis points,and 3.3 basis points respectively.The yields on credit bonds and credit spreads declined in tandem,and the bond market continued its bull market trend.

During the week of June 17th to 21st,the total financing of A-shares was 7.13 billion yuan,a decrease of 18.74 billion yuan from the previous week.Looking at the year,the cumulative financing of A-shares this year was 164.91 billion yuan,weaker than the same period in previous years.From the perspective of the secondary market,the main stock indices of A-shares generally fell last week,with the Shanghai Composite Index falling by 1.1%,the SME Index falling by 1.5%,and the ChiNext Index falling by 2%.Since June,the main market indicators of A-shares have all fallen from the highs in May.Last week,the average daily trading volume of A-shares was 708.4 billion yuan,and the price-to-earnings ratio was 14.75,both at historical lows.

Main Text

I.Overview of China's Financial Conditions Index

During the week of June 17th to June 21st,the First Financial Research Institute's China Financial Conditions Daily Index had an average value of -2.63,which was an increase of 0.19 compared to the previous week,and a decrease of 1.25 for the year.

Looking at the components of the index,the tightening of the interbank market liquidity last week was the main factor driving the index upward.In terms of monetary indicators,the main money market interest rates rose last week,indicating a tightening of market liquidity.From the bond market perspective,the yields on long-term interest rate bonds and credit bonds continued to decline.Regarding stock market indicators,the price-to-earnings ratio fell.

II.Money MarketDuring the week of June 17th to 21st,there was a noticeable tightening in the interbank market liquidity,which was primarily reflected in the decline of the repurchase agreement transaction volume and the rise in money market interest rates.The overnight repurchase rate saw a significant increase,with the average rates of R001 and DR001 rising by 15.24 basis points (bp) and 14.74 bp respectively compared to the previous week.There may be two underlying factors contributing to the marginal tightening of liquidity in the interbank market: First,as the end of June approaches,financial institutions typically face stringent regulatory assessments at the quarter-end,and we anticipate that the liquidity tension will persist until the end of June.Second,the bond issuance volume in the interbank market last week increased substantially compared to the previous week,leading to higher demand for funds and consequently pushing interest rates higher.

Against this backdrop,the central bank correspondingly expanded the scale of reverse repo operations last week,with a total of 398 billion yuan injected through reverse repos.On June 19th,at the Lujiazui Forum,the central bank governor Pan Gongsheng stated that China's monetary policy is supportive,providing financial support for the continuous and improving economic recovery.In terms of macroeconomic regulation,the central bank will manage and balance three sets of relationships: First,the relationship between short-term and long-term considerations,prioritizing the maintenance of price stability and promoting a moderate rise in prices,while maintaining policy resilience.Second,the relationship between stable growth and risk prevention,balancing support for the growth of the real economy with the prevention and resolution of financial risks.Third,the relationship between internal and external factors,mainly considering the needs of the domestic economic and financial situation for regulation,and taking into account the spillover effects of the economic and policy cycles of other economies.

1.Money Market Transaction Volume and Interest Rates

From June 17th to 21st,the liquidity in the interbank market tightened compared to the previous week.In terms of transaction volume,the repurchase agreement transaction volume in the interbank market decreased last week,with the average weekly volume falling from 6.94 trillion yuan to 6.12 trillion yuan.

Looking at the cost of funds,after two months of stable operation,the main money market interest rates rose to varying degrees last week.In the overnight repurchase rates,the average rates of R001 and DR001 were 1.95% and 1.89% respectively,an increase of 15.24 bp and 14.74 bp compared to the previous week.In the 7-day repurchase rates,the average rates of R007 and DR007 were 1.93% and 1.9% respectively,an increase of 9.66 bp and 8.57 bp compared to the previous week.

Amid the marginal tightening of liquidity,the liquidity difference between banks and non-bank financial institutions has increased.Last week,the spread between R007 and DR007 rates rose from 2 bp to 14.77 bp.However,looking at the year-to-date figures,this value is still at a relatively low level,indicating that the liquidity difference between banks and non-bank financial institutions is not significant.

2.Central Bank's Open Market Operations

As the liquidity in the interbank market tightened,the central bank also expanded the amount of reverse repo operations.Last week,the average daily reverse repo operations by the central bank reached 80 billion yuan,with the operations reaching 86 billion yuan on June 18th and 278 billion yuan on June 19th.

On June 19th,at the Lujiazui Forum,the central bank governor Pan Gongsheng delivered a speech titled "China's Current Monetary Policy Stance and the Evolution of the Future Monetary Policy Framework." Pan Gongsheng pointed out that,unlike the restrictive monetary policies of developed countries,China's monetary policy is supportive,providing financial support for the continuous and improving economic recovery.In regulation,the central bank will focus on managing and balancing three sets of relationships: First,the relationship between short-term and long-term considerations,prioritizing the maintenance of price stability and promoting a moderate rise in prices,flexibly using policy tools such as interest rates and reserve requirement ratios,while maintaining policy resilience and avoiding drastic tightening or easing.Second,the relationship between stable growth and risk prevention,balancing support for the growth of the real economy with maintaining the health of financial institutions,and insisting on preventing and resolving financial risks in the process of promoting high-quality economic development.Third,the relationship between internal and external factors,mainly considering the needs of the domestic economic and financial situation for regulation,and taking into account the spillover effects of the economic and policy cycles of other economies.**III.Bond Market**

During the week of June 17th to 21st,both the issuance and net financing of the bond market saw a significant increase compared to the previous week.Specifically,the total issuance of the bond market reached 2.3 trillion yuan,an increase of 908.398 billion yuan from the previous week; the net financing of the bond market was 650.142 billion yuan,an increase of 570.642 billion yuan from the previous week.Looking at the financing structure,the acceleration of bond issuance by government and financial sectors last week drove a substantial increase in the net financing of the entire bond market.Within the government sector,the issuance of government bonds last week reached 491.9 billion yuan,with a net financing of 22.924 billion yuan.

From the perspective of the secondary market,the yields of short-term and long-term government bonds showed a divergent trend last week.Influenced by the tightening of the interbank market liquidity,the yields of government bonds with a maturity of less than one year generally increased.Additionally,with the release of the economic data for May,the year-on-year growth rates of several key economic indicators all declined compared to April,leading to a continuous decrease in the yields of long-term government bonds.Last week,the yields of 5-year,10-year,and 30-year government bonds decreased by 1.78 basis points,2.06 basis points,and 3.3 basis points,respectively.The yields of credit bonds and credit spreads declined in tandem,with the bond market continuing its bull market trend.

1.Bond Market Issuance

During the week of June 17th to 21st,both the issuance and net financing of the bond market saw a significant increase compared to the previous week.Specifically,the total issuance of the bond market reached 2.3 trillion yuan,an increase of 908.398 billion yuan from the previous week; the net financing of the bond market was 650.142 billion yuan,an increase of 570.642 billion yuan from the previous week.

In terms of financing structure,the bond issuance by government and financial sectors last week was strong,leading to a substantial increase in the net financing of the entire bond market.Looking at the government sector,the issuance of government bonds last week reached 491.9 billion yuan,with a net financing of 22.924 billion yuan.In the financial sector,the net financing of interbank certificates of deposit was 323.47 billion yuan last week,while the policy bank bonds had a net repayment of 8.346 billion yuan.Commercial banks' general bonds and subordinated bonds had net financing of 1.83 billion yuan and 1.74 billion yuan,respectively,with the entire financial sector having a net financing of 300.46 billion yuan.In the non-financial corporate sector,corporate bonds,medium-term notes,and short-term financing had net financing of 1.1397 billion yuan,41.44 billion yuan,and 8.897 billion yuan,respectively.Directed tools and asset-backed securities had net repayments of 2.702 billion yuan and 4.271 billion yuan,respectively,with the entire non-financial corporate sector having a net financing of 53.875 billion yuan.

Looking at the year-to-date,as the issuance of government bonds and local government special bonds accelerates,the proportion of government sector bonds in the overall bond market financing is gradually increasing,compared to which the proportion of the non-financial corporate sector has declined.As of June 23rd,this year,the cumulative net financing of government sector bonds reached 2.72 trillion yuan,accounting for 37.8% of the overall net financing of the bond market; the cumulative net financing of the financial sector reached 3.64 trillion yuan,accounting for 50.5%; the cumulative net financing of the non-financial corporate sector was 84.21 billion yuan,accounting for 11.7%.

Compared to the same period last year,the overall net financing scale of the bond market this year has expanded significantly.As of June 23rd,the year-on-year growth rate of the government sector bond balance was 15.4%,an increase of 4.2 percentage points from the same period in 2023; the year-on-year growth rate of the financial sector bond balance was 13.2%,an increase of 6.2 percentage points from the same period in 2023; the year-on-year growth rate of the non-financial corporate sector bond balance was 3.4%,an increase of 4.9 percentage points from the same period in 2023.

2.Trends in Bond Yields

1) Interest Rate BondsDuring the week of June 17th to 21st,government bond yields fluctuated across different maturities,with short-term and long-term yields showing divergent trends.On the short end,influenced by the tight interbank market liquidity,yields on government bonds with maturities of less than one year generally increased,with the yields for 1-month,3-month,6-month,and 1-year bonds rising by 3.22 basis points (bp),0.47 bp,0.31 bp,and 0.09 bp,respectively.The yields on medium to long-term government bonds continued their downward trend that began in May.As of last week,all economic data for May have been released,with several key indicators showing a year-on-year slowdown compared to April,which has driven long-term bond yields lower.Among the main economic data for May,the Purchasing Managers' Index (PMI) fell to 49.5,the year-on-year growth rate of industrial value-added decreased to 6.2%,the cumulative year-on-year growth rate of fixed asset investment fell to 4%,the cumulative year-on-year growth rate of real estate development investment fell to -10.1%,the cumulative year-on-year growth rate of total retail sales of consumer goods remained at 4.1%,and the cumulative year-on-year growth rates of public fiscal revenue and national government fund revenue fell to -2.8% and -10.8%,respectively.Looking at government bond data,last week the yields on 2-year,5-year,10-year,and 30-year government bonds fell by 3.78 bp,1.78 bp,2.06 bp,and 3.3 bp,respectively.

Regarding the yield spread of government bonds,during the week of June 17th to 21st,the term spread of government bonds slightly decreased.As of June 21st,the yield spread between the 10-year and 1-year government bonds was 66.56 bp,a decrease of 2.15 bp from the previous week.Looking at the year-to-date,the term spread of government bonds has generally shown a trend of fluctuating upward,with the spread between the 10-year and 1-year government bonds increasing by 19 bp as of June 21st compared to the beginning of the year.

2) Credit Bonds

During the week of June 17th to 21st,the yields on credit bonds of various types continued to decline.Among AAA-rated bonds,the yields on 5-year corporate bonds,corporate bonds,and asset-backed securities decreased by 2.13 bp,2.02 bp,and 2.66 bp,respectively.For AA-rated bonds,the yields on 5-year corporate bonds,corporate bonds,and asset-backed securities decreased by 3.13 bp,3.72 bp,and 3.16 bp,respectively.

The spread between credit bonds and government bonds also decreased in tandem.Among AAA-rated bonds,the spread between corporate bonds,corporate bonds,and asset-backed securities and government bonds decreased by 0.35 bp,0.24 bp,and 0.88 bp,respectively.For AA-rated bonds,the spread between corporate bonds,corporate bonds,and asset-backed securities and government bonds decreased by 1.35 bp,1.95 bp,and 1.39 bp,respectively.

IV.Stock Market

During the week of June 17th to 21st,the total financing amount for A-shares was 7.13 billion yuan,a decrease of 18.74 billion yuan from the previous week.Looking at the year-to-date,the cumulative financing for A-shares this year has been 164.91 billion yuan,which is weaker than the same period in previous years.

From the secondary market perspective,last week the main A-share indexes generally fell,with the Shanghai Composite Index down by 1.1%,the SME Index down by 1.5%,and the ChiNext Index down by 2%.Since June,all major market indicators for A-shares have retreated from their highs in May.Last week,the average daily trading volume of A-shares was 708.4 billion yuan,and the price-to-earnings ratio was 14.75,both of which are at historical lows.

1.Primary Market

During the week of June 17th to 21st,the total financing amount for A-shares was 7.13 billion yuan,a decrease of 18.74 billion yuan from the previous week.Looking at the 4-week rolling average data of A-share financing,the overall trend has been relatively sluggish since the fourth quarter of last year.Looking at the year-to-date,the cumulative financing for A-shares this year has been 164.91 billion yuan,which is significantly weaker than the same period in previous years.2.Secondary Market

During the week of June 17th to 21st,the major stock indices in the A-share market generally declined,with the Shanghai Composite Index falling by 1.1%,the Small and Medium Board Index falling by 1.5%,and the ChiNext Index falling by 2%.Looking at the year-to-date performance,the Shanghai Composite Index has accumulated a 0.8% increase,the Small and Medium Board Index has accumulated a 4.4% decrease,and the ChiNext Index has accumulated a 7.2% decrease.Since the end of May,the main A-share indices have retreated from their highs,and on June 21st,the Shanghai Composite Index once again fell below the 3,000 point mark.Concurrently,the market's risk appetite,measured by the year-over-year growth rate of the stock index minus the yield of the 10-year government bond,has shown a downward trend.

In terms of trading volume,the average daily trading volume of A-shares last week was 708.4 billion yuan,a decrease of 5.5% compared to the previous week.Regarding price-to-earnings (P/E) ratios,the weighted average P/E ratio of A-shares last week was 14.75,a decrease of 0.5% compared to the previous week.Both the trading volume and P/E ratios of A-shares are at historical lows.Recently,the difference between A-shares' margin financing and short selling has decreased to 1.44 trillion yuan,accounting for 1.9% of the total market value of A-shares.