Can the weighted DR001 fall below 1.3%?

Monday Strategy Review

Bond Value-Added Tax, Non-Farm Payrolls, and Commodity Futures: Bond Market Morning Strategy (2025-8-4)

[Bond Market Tracking] Last week, the bond market experienced significant volatility, with interest rates rising and then falling. The fluctuations in the stock market and commodity futures have led to changes in bond yields. This week, we focus on:

First, the issue of bond interest value-added tax. The Ministry of Finance issued an announcement regarding the value-added tax policy on interest income from government bonds and other bonds. Starting from August 8, the interest income from newly issued government bonds, local government bonds, and financial bonds will be subject to value-added tax again, with the tax rate for ordinary self-operated institutions rising from 0% to 6%, and for asset management products (including public funds) from 0% to 3%. We believe:

(1) This is favorable for old bonds and unfavorable for new bonds. By the end of Friday's trading, the market had already begun to scramble for bonds. The impact on the 10-year new government bonds is 10bp for self-operated and 5bp for asset management, with a comprehensive impact between 5-10bp. However, considering the decline in old bond yields, the rebound in the 10-year new government bond yield may be below this range. Moreover, this impact is a one-time shock, and future bond yields will still be more influenced by macroeconomic factors. (2) Although logically favorable for credit bonds and credit assets, the reason banks are not lending is not due to the cost-effectiveness of loans, but rather a lack of demand for loans. Asset management products are also primarily focused on credit bonds, and there is no large-scale sell-off of yields to exchange for credit bonds. (3) Why restore the value-added tax? We believe the core issue is the pressure on fiscal revenue. From this perspective, it is even less likely for bond yields to rebound significantly. Logically, the extent of value-added tax collection must exceed the extent of the rebound in government bond issuance yields due to the value-added tax, which would still improve fiscal revenue and expenditure. (4) In the short term, the tax advantages of asset management products are greater, which may drive banks to borrow for asset management product investments in interest rate bonds. However, in the medium term, we need to be wary of the weakening of the tax-exempt effect of asset management products, especially public funds.

Overall, we believe this policy may lead to a decline in old bond yields and a rebound in new bond yields, but the extent will be limited. The bond market will ultimately be more influenced by macroeconomic trends.

Second, the data released last Friday showed that the U.S. non-farm payrolls in July increased by 73,000, which is below expectations; more critically, the data for May and June was significantly revised downward. We do not discuss why the data changed so much, but purely from a data perspective, the necessity for the Fed to cut interest rates this year has significantly increased, and this expectation may have a considerable impact on the global financial market in the future.

Third, the issue of commodity futures. Last week, commodity futures cooled down, with several leading varieties experiencing significant declines. This is mainly because: the zzj meeting showed that the anti-involution path was not as previously expected by the market; the PMI indicated that upstream price increases are difficult to pass on to downstream, meaning that the price increases in upstream commodity futures lack solid foundations; exchanges have also regulated and constrained market speculation. In the future, we need to pay attention to the fact that without macroeconomic support and a smooth transmission path for prices, commodity futures that have risen too quickly may face further downward pressure.

In addition, attention should be paid to the issue of U.S. global trade tariffs. Strategically, we believe that the various factors that were previously bearish for bonds have weakened, and after the prior adjustments in the bond market, the cost-effectiveness is higher, with interest rates expected to continue to decline in the future Focus on DR001 Can the weighted rate fall below 1.3% : Bond Market Midday Strategy (2025-8-4)

[Bond Market Tracking] On Monday morning, interest rates on bonds declined, while the stock market and commodities fluctuated, with ample liquidity.

In terms of liquidity, the central bank's OMO has net injected funds, resulting in a relatively loose monetary environment. The weighted rate of DR001 is close to 1.3%, having reached a new low for the year. There is a possibility of further declines in the future. In contrast, the interest rate spread between DR007 and DR001 is relatively high. If the central bank continues to net inject funds into the OMO market, DR007 may have greater downward potential. The loose liquidity ensures that current interest rates are easier to decrease than to increase.

The stock market is fluctuating, with more stocks rising than falling, and trading volume has shrunk compared to last Friday. The military industry leads the gains, while dividend sectors like banks also show significant increases, reflecting a defensive sentiment in the stock market; the pharmaceutical sector leads the declines. Commodity futures have improved compared to last Friday's night session, but only the leading varieties have seen a narrowing of declines, while other varieties have expanded their declines, indicating a spread of pessimistic expectations. Additionally, egg futures have hit a new low, and live pig futures are close to previous lows, reflecting weak terminal demand. Considering the previous rebound in commodity futures and the lack of fundamental support, further declines are expected in the short term.

In the afternoon, attention should be paid to stock market fluctuations and liquidity conditions. Currently, the bond market environment is favorable, and it is recommended to hold positions for potential gains; for institutions with low positions, it is advised to gradually increase holdings.

Author of this article: Huachuang Asset Management, Source: Qu Qing Bond Forum, Original Title: "Focus on DR001 Can the weighted rate fall below 1.3%——Huachuang Asset Management Bond Daily 2025-8-4"

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The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account individual users' specific investment goals, financial conditions, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk