Summary of Key Points
In May, the net financing of interbank certificates of deposit (CDs) turned positive for the first time in half a year, with a net increase of 161.7 billion yuan, mainly driven by large state-owned banks (which had a net financing of 546.5 billion yuan). However, other banks still showed negative figures. This change has sparked market分歧: does it indicate an improvement in the "lack of assets," tightening of liquidity, or changes in bond market risks? The key is to see if this trend continues. Current credit demand remains weak, and although liquidity is loose, it is gradually returning to normal. Bond market yields may rebound due to rising funding rates. In the future, attention should be paid to the sustainability of net CD financing, the direction of funding rates, and the recovery of credit.
Detailed Analysis
#### 1. Who is driving the positive change in net CD financing? There is a clear structural differentiation.
- Simple explanation: Interbank CDs are certificates used for banks to borrow from each other. A positive net financing figure means that more new CDs were issued than matured, indicating that banks are actively borrowing money.
- Data support: In May, the issuance volume was 3.13 trillion yuan, while the maturity amount was 2.96 trillion yuan, resulting in a net increase of 161.7 billion yuan. This marked the first positive net financing figure in six consecutive months (as banks had ample liabilities and did not need to borrow).
- Leading players: Large state-owned banks were the main drivers, with a net financing of 546.5 billion yuan, showing an increase for two consecutive months. Other banks, such as joint-stock and city commercial banks, continued to have negative net financings.
- Reasons behind this: Large banks are issuing CDs not because they need to increase lending (due to weak credit demand), but for the following reasons: ① They are taking advantage of low interest rates (around 1.4% for one-year CDs) to optimize their liability costs; ② They are preparing liquidity in advance to prevent potential funding shortages; ③ They are improving their liquidity indicators at the end of the month to meet regulatory requirements.
Additional note: Previously, the utilization rate of bank CD quotas was low (with large banks having a lower utilization rate, and only 3 out of 8 joint-stock banks using their quotas at full capacity). This suggests that banks did not need to borrow before. Now, large banks are actively increasing leverage, reversing the overall situation.
#### 2. A positive change in CD financing does not equal an improvement in the "lack of assets"; credit demand remains weak.
- Simple explanation: The "lack of assets" refers to a situation where banks have money but cannot find good loan opportunities (for example, businesses are reluctant to borrow for expansion), so they have to buy bonds or bills.
- Current credit situation: New loans in April showed negative growth (the first time since July last year), and the situation in May is also not optimistic. Bill rates have dropped almost to zero (0.32% for three-month bills), indicating that banks are using bills as a substitute for loans because they cannot make new loans.
- Conclusion: The positive change in CD financing is due to large banks' own liability management needs, and the "lack of assets" has not truly improved.
#### 3. Is the loose liquidity coming to an end? It is slowly returning to normal.
- Simple explanation: Loose liquidity means there is plenty of money in the market with low borrowing costs; normalization means that the amount of money is neither too much nor too little, and interest rates return to the central bank's "benchmark" levels (e.g., the 7-day reverse repurchase rate of 1.4%).
- Current situation: The money market remains loose—the 7-day interbank borrowing rate (DR007) is at 1.36%, below the policy rate of 1.4%. However, this rate is gradually moving closer to the benchmark (DR001 has risen above 1.3% in late May).
- Central bank actions: The central bank is "tightening short-term funds and easing long-term ones"—by not renewing short-term loans and increasing long-term funding (e.g., through MLF operations) to guide money back to a stable level.
- Institutional views: The probability of further loosening is low (since many indicators are already at extremely loose levels), but there will be no immediate tightening due to the return of funds from foreign exchange transactions and the use of structural monetary policy tools.
#### 4. Impact on the bond market: Yields may rebound; watch for changes in funding rates.
- Simple explanation: Bond yields and prices move in opposite directions—lower yields lead to higher bond prices, and higher yields lead to lower bond prices.
- Current situation: Loose liquidity previously caused bond prices to rise (the yield on 10-year government bonds fell from around 1.75% in mid-May to around 1.7%).
- Future trend: If funding rates return to the policy level (1.4%), bond yields may rebound (bond prices will fall). Historical experience shows that an increase in DR007 in the first quarter of 2025 once curbed falling bond yields.
- Risk signal: Whether funding rates will rise trendily (e.g., if DR007 remains above 1.4%) is a key risk for the bond market.
#### 5. Several indicators to watch for future trends:
- Sustainability of net CD financing: If net financing continues to be positive for 2-3 months, it indicates an increasing demand from banks to borrow money, which may suggest tightening of liquidity.
- Direction of funding rates: Whether DR007 returns above 1.4% and whether it continues to rise.
- Recovery of credit demand: If new loans show continuous positive growth, it suggests that businesses are willing to borrow, and banks may not need to issue as many CDs, which could affect liquidity.
#### Conclusion
The positive change in net CD financing is mainly the result of large banks actively adjusting their liabilities, not a sign of economic improvement. Liquidity will gradually return to normal levels, and the bond market may face risks of adjustment. The general public does not need to panic excessively but can pay attention to these indicators to gauge market changes.