In the first week of July, as the regulatory factors at the end of the quarter receded, the interbank market liquidity returned to a stable and abundant level, with the average daily volume of pledged repurchase transactions rebounding to 6.64 trillion yuan, and the main money market interest rates significantly decreased. Among them, in the 7-day repurchase rate, the average of R007 and DR007 were 1.86% and 1.8%, respectively, which were 47.22bp and 29.66bp lower than the previous week. The liquidity difference between banks and non-bank financial institutions narrowed significantly, with the average spread between R007 and DR007 falling below 10bp. Against this backdrop, the central bank correspondingly reduced the scale of reverse repurchase operations, with a daily injection of only 2 billion yuan. Last week, the central bank injected 10 billion yuan through reverse repurchase operations, while 740 billion yuan matured, resulting in a net withdrawal of funds of 740 billion yuan.

From July 1st to 5th, both the issuance and net financing of the bond market decreased compared to the previous week. The total issuance of the bond market was 683.216 billion yuan, a decrease of 141 billion yuan from the previous week; the net financing of the bond market was 43.418 billion yuan, a decrease of 407.382 billion yuan from the previous week. Looking at the financing structure, last week's net financing in the bond market was mainly concentrated in the government sector and the non-financial corporate sector, with the government sector's net financing at 47.729 billion yuan and the non-financial corporate sector's net financing at 70.409 billion yuan. In terms of the secondary market, the yields of short-term and long-term government bonds showed a divergent trend. Influenced by the abundant liquidity in the interbank market, the yields of short-term government bonds with maturities of less than one year generally decreased, with the yields of 1-month, 3-month, 6-month, and 1-year government bonds decreasing by 1.06bp, 1.51bp, 3.12bp, and 2.2bp respectively compared to the previous week. Looking at the long end, the central bank's recent actions of borrowing government bonds from primary dealers have caused market fluctuations, and the market expects the central bank to stabilize long-term yields by selling government bonds to prevent excessive rate adjustments. Under this background, last week's yields of 10-year, 20-year, and 30-year government bonds increased by 2.74bp, 4.7bp, and 4.1bp respectively compared to the previous week.

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From July 1st to 5th, the total financing amount of A-shares was 3.142 billion yuan, a decrease of 4.723 billion yuan from the previous week. Looking at the year-to-date, the cumulative financing of A-shares this year was 176.116 billion yuan, which is weaker than the same period in previous years. In terms of the secondary market, the main stock indices of A-shares generally fell last week, with the Shanghai Composite Index down by 0.6%, the SME Index down by 1.7%, and the ChiNext Index down by 1.7%. Last week, the average daily trading volume of A-shares was only 609.1 billion yuan, and the price-to-earnings ratio was 14.03, both of which are in the historical low range.

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I. Overview of the China Financial Conditions Index

From July 1st to July 5th, the average value of the First Financial Research Institute's China Financial Conditions Daily Index was -2.64, which decreased by 0.63 compared to the previous week, and decreased by 1.28 year-on-year.

Looking at the components of the index, the loose funding situation last week was the main factor driving the index down. In terms of monetary indicators, the main money market interest rates significantly decreased last week, and the liquidity difference between non-bank and bank institutions narrowed significantly. From the bond market perspective, the spreads between most types of credit bonds and government bonds narrowed last week. In terms of stock market indicators, the trading volume and price-to-earnings ratio of A-shares fell synchronously last week, and the financing scale decreased.

II. Money Market

In the first week of July, as the regulatory factors at the end of the quarter receded, the interbank market liquidity returned to a stable and abundant level. The average daily volume of pledged repurchase transactions rebounded to 6.64 trillion yuan, and the main money market interest rates significantly decreased. Among them, in the 7-day repurchase rate, the average of R007 and DR007 were 1.86% and 1.8%, respectively, which were 47.22bp and 29.66bp lower than the previous week. The liquidity difference between banks and non-bank financial institutions narrowed significantly, with the average spread between R007 and DR007 falling below 10bp.

In this context, the central bank correspondingly reduced the scale of reverse repurchase operations, with a daily injection of only 2 billion yuan. Last week, the central bank injected 10 billion yuan through reverse repurchase operations, while 740 billion yuan matured, resulting in a net withdrawal of funds of 740 billion yuan.1. Money Market Transaction Volume and Interest Rates

In the first week of July, as the regulatory factors at the end of the quarter receded, the interbank market liquidity returned to a stable and abundant level. In terms of transaction volume, the average daily transaction volume of pledged repurchase in the interbank market last week was 6.64 trillion yuan, an increase of 1.37 trillion yuan from the previous week.

Looking at the price of funds, the main money market interest rates significantly decreased last week. In the overnight repurchase rate, the average of R001 and DR001 last week were 1.78% and 1.72%, respectively, down by 25.79 basis points (bp) and 15.44 bp from the previous week. In the 7-day repurchase rate, the average of R007 and DR007 last week were 1.86% and 1.80%, respectively, down by 47.22 bp and 29.66 bp from the previous week.

As the liquidity in the interbank market tends to ease, the liquidity gap between banks and non-bank financial institutions has significantly narrowed. Last week, the average spread between R007 and DR007 was 8.29 bp, falling back below 10 bp, down by 15.51 bp from the previous week.

2. Central Bank's Open Market Operations

With the relaxation of liquidity in the interbank market, the central bank also correspondingly reduced the daily 7-day reverse repurchase injection to a level of 2 billion yuan. Last week, the central bank injected a total of 10 billion yuan, with reverse repurchase maturities of 750 billion yuan, resulting in a net withdrawal of 740 billion yuan by the central bank.

III. Bond Market

From July 1st to 5th, both the issuance and net financing of the bond market decreased compared to the previous week. The total issuance of the bond market was 683.216 billion yuan, a decrease of 141 billion yuan from the previous week; the net financing of the bond market was 43.418 billion yuan, a decrease of 407.382 billion yuan from the previous week. Looking at the financing structure, the net financing of the bond market last week was mainly concentrated in the government sector and the non-financial corporate sector, with the government sector's net financing at 47.729 billion yuan, and the non-financial corporate sector's net financing at 70.409 billion yuan.

From the secondary market perspective, the yields of short-term and long-term government bonds showed divergent trends. Influenced by the abundant liquidity in the interbank market, the yields of short-term government bonds with a maturity of less than one year generally decreased, with the yields of 1-month, 3-month, 6-month, and 1-year government bonds decreasing by 1.06 bp, 1.51 bp, 3.12 bp, and 2.2 bp, respectively, from the previous week. Looking at the long end, the central bank's recent actions of borrowing government bonds from primary dealers have caused market fluctuations. The market expects the central bank to stabilize long-term yields by selling government bonds to prevent excessive interest rate adjustments. Against this backdrop, the yields of 10-year, 20-year, and 30-year government bonds last week increased by 2.74 bp, 4.7 bp, and 4.1 bp, respectively, from the previous week.

1. Bond Market IssuanceIn the week from July 1 to 5, the issuance amount and net financing amount of the bond market both decreased compared with the previous week. Among them, the total issuance amount of the bond market was 683.216 billion yuan, a decrease of 1.41 trillion yuan from the previous week; the net financing amount of the bond market was 43.418 billion yuan, a decrease of 407.382 billion yuan from the previous week.Last week, the spreads between most credit bonds and government bonds also declined in tandem. Among AAA-rated bonds, the spreads between corporate bonds, company bonds, and asset-backed securities and government bonds decreased by 0.85 basis points (bps), 0.26 bps, and 2.15 bps, respectively. For AA-rated bonds, the spreads between corporate bonds and company bonds and government bonds increased by 0.29 bps and 1.37 bps, respectively, while the spread between asset-backed securities and government bonds decreased by 2.17 bps.

IV. Stock Market

From July 1st to 5th, the total financing amount of A-shares was 31.42 billion yuan, a decrease of 47.23 billion yuan from the previous week. Looking at the year-to-date, the cumulative financing of A-shares this year reached 176.116 billion yuan, which is weaker than the same period in previous years.

From the secondary market perspective, last week saw a general decline in the main A-share indices, with the Shanghai Composite Index falling by 0.6%, the SME Index falling by 1.7%, and the ChiNext Index falling by 1.7%. The average daily trading volume of A-shares last week was only 609.1 billion yuan, and the price-to-earnings (P/E) ratio was 14.03, both of which are in the historical low range.

1. Primary Market

From July 1st to 5th, the total financing amount of A-shares was 31.42 billion yuan, a decrease of 47.23 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. Year-to-date, the cumulative financing of A-shares this year is 176.116 billion yuan, which is weaker than the same period in previous years.

2. Secondary Market

From July 1st to 5th, the main A-share indices generally fell, with the Shanghai Composite Index down by 0.6%, the SME Index down by 1.7%, and the ChiNext Index down by 1.7%. Year-to-date, the Shanghai Composite Index has cumulatively fallen by 0.8%, the SME Index has cumulatively fallen by 7.5%, and the ChiNext Index has cumulatively fallen by 12.5%. The market risk preference, measured by the year-on-year growth rate of the index minus the yield of the 10-year government bond, also shows a synchronized downward trend.

In terms of trading volume, the average daily trading volume of A-shares last week was 609.1 billion yuan, a decrease of 8.4% from the previous week. Regarding the P/E ratio, the weighted average P/E ratio of A-shares last week was 14.03, a decrease of 1.2% from the previous week. Both the trading volume and P/E ratio of A-shares are in the historical low range. Recently, the difference between A-share financing and securities lending has decreased to 1.41 trillion yuan, accounting for 1.94% of the total market value of A-shares.