<h2>Core Viewpoints</h2>
The probability of interest rate cuts within the year has decreased, and demand-side policies may sustain inflation expectations, continuously suppressing the bond market, with the window for bullish positions in the bond market likely to be further postponed.
<ol>
<li>The probability of interest rate cuts within the year has further decreased. The probability of interest rate cuts may decline further under the &#34;fiscal substitution for monetary policy, structural substitution for total volume, and expectation management&#34; triple effect. First, fiscal interest subsidies ≈ targeted interest rate cuts, reducing the necessity for the central bank's total monetary tools; second, structural policies may limit the space for &#34;comprehensive interest rate cuts,&#34; which is more conducive to preventing idle capital; finally, with rising inflation expectations, the central bank is more cautious about cutting rates, leading to a further decrease in the probability of interest rate cuts within the year.</li>
</ol>
2. Inflation expectations have been reinforced again under the &#34;anti-involution&#34; trend. Against the backdrop of the continuous promotion of &#34;anti-involution&#34; policies, inflation expectations have been temporarily reinforced through the path of supply contraction → price signals → self-reinforcing expectations. Although the market has begun to compare this to the supply-side reform of 2016 and preemptively bet on re-inflation, the inflation narrative based solely on supply contraction logic may lack sustainability, and demand-side policies may provide better support for price increase expectations, driving a second wave of &#34;anti-involution trading.&#34;
3. The window for bullish positions in the bond market may be further postponed. The interest subsidy policy, through the combination of &#34;fiscal support + structural interest rate cuts,&#34; has significantly compressed the central bank's total monetary policy easing space for the year, leading to a further decrease in the probability of interest rate cuts. Considering that personal loan interest subsidy policies will continue until August 31, 2026, the next interest rate cut window is expected to be postponed to the first quarter of 2026, and there is a possibility of &#34;defensive interest rate cuts&#34; within the year. Demand-side policies may sustain inflation expectations, and the strong performance of the equity market in the short term may continuously suppress the bond market, further postponing the bullish window and increasing the probability of a steepening curve.
<h2>Main Text</h2>
1. How to understand the personal consumption loan interest subsidy policy?
On July 31, the State Council Standing Committee convened and proposed to deploy and implement personal consumption loan interest subsidy policies and service industry operating entity loan interest subsidy policies. On August 6, the Ministry of Finance and nine other departments issued the &#34;Implementation Plan for Service Industry Operating Entity Loan Interest Subsidit Policy&#34;; on August 12, the Ministry of Finance, the People's Bank of China, and the Financial Regulatory Administration further issued the &#34;Implementation Plan for Personal Consumption Loan Fiscal Interest Subsidy Policy,&#34; clarifying the details of the personal consumption loan fiscal interest subsidy policy in terms of policy content, organizational implementation, and fund supervision.
The scope of this personal consumption loan interest subsidy includes consumption below 50,000 yuan per single loan, as well as key areas of consumption such as household vehicles, elderly care, childbirth, education and training, cultural tourism, home decoration, electronic products, and health care for single loans of 50,000 yuan and above. The total interest subsidy limit for each borrower at a loan processing institution is 3,000 yuan (corresponding to a cumulative consumption amount of 300,000 yuan), of which the cumulative interest subsidy limit for personal consumption loans below 50,000 yuan at a single loan processing institution is 1,000 yuan (corresponding to a cumulative consumption amount of 100,000 yuan).
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/3b00a835-17b8-4b49-8e38-f4be0742c20e.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/3b00a835-17b8-4b49-8e38-f4be0742c20e.png"/>
How does the implementation of the personal consumption loan interest subsidy policy affect the bond market? We believe there are mainly three aspects of impact:
1. The probability of interest rate cuts within the year further decreases.
The probability of interest rate cuts within the year may further decrease under the &#34;fiscal substitution for monetary policy, structural substitution for total volume, and expectation management&#34; triple effect.
First, fiscal subsidies ≈ targeted interest rate cuts, reducing the necessity of central bank total volume tools. A 1 percentage point subsidy with the central government bearing 90% is equivalent to implementing a targeted interest rate cut of 0.5 to 1 percentage points in key consumption areas, leading to a decline in the actual financing costs for consumers. Taking the annualized consumption loan rate of around 2.75% from state-owned banks as an example, after the subsidy, the actual interest rate borne by borrowers can be as low as 1.75%, equivalent to the central bank lowering the one-year LPR by 100 basis points. Therefore, the necessity for the central bank to further implement total volume monetary policy tools, such as lowering the 7-day OMO rate to stimulate credit demand, decreases.
Second, structural policies may suppress the space for &#34;comprehensive interest rate cuts,&#34; which is more conducive to preventing fund idling. The subsidy policy strengthens supervision and constraints through consumption purpose identification (such as limited scenarios for car purchases, renovations, elderly care, childbirth, etc.), ensuring that subsidy funds are used specifically for their intended purposes, effectively avoiding fund idling. Comprehensive interest rate cuts may lead to some funds being trapped in the interbank market (with DR007 around 1.44% on August 12, close to the 7-day OMO policy rate of 1.4%), contradicting the &#34;prevent idling&#34; tone. In addition, with the expectation of a rate cut by the Federal Reserve in September, if the central bank also cuts rates, it may weaken the stabilizing effect on the RMB exchange rate. The subsidy policy becomes a compromise choice that prioritizes domestic considerations, leaving some space for domestic monetary policy.
Finally, with rising inflation expectations, the central bank becomes more cautious about rate cuts, and the probability of rate cuts within the year further decreases. The subsidy policy will continue until August 31, 2026, during which the central bank needs to observe the impact of fiscal stimulus on core CPI. After the policy effects are gradually verified, it may be necessary to make the next rate cut decision, thus delaying the rate cut until the first quarter of 2026.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/01811e53-47ee-4bd8-82be-b70423772f21.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/01811e53-47ee-4bd8-82be-b70423772f21.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f7fffe9d-3c17-4021-b012-71c779138ff6.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f7fffe9d-3c17-4021-b012-71c779138ff6.png"/>
2. Inflation expectations are reinforced again under the &#34;anti-involution&#34; trend.
Against the backdrop of the ongoing &#34;anti-involution&#34; policy, inflation expectations are reinforced through the path of supply contraction → price signals → self-reinforcing expectations. On one hand, industries such as glass, photovoltaics, and coal have reached implicit production reduction agreements through industry associations or administrative guidance under the &#34;anti-involution&#34; tone, directly pushing up spot prices. For example, in July, coking coal futures continued to hit the limit up even though inventories did not show a significant decline, reflecting that policy expectations have outpaced the fundamentals. On the other hand, after the policy releases the signal of &#34;price bottoming,&#34; downstream traders will actively replenish inventory, thereby amplifying the short-term supply-demand gap. The South China Industrial Products Index rose by 11% from June to July, and the premiums for forward contracts of steel and other varieties significantly expanded
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/22a6c78f-950f-40d6-92bc-fd81368f2adf.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/22a6c78f-950f-40d6-92bc-fd81368f2adf.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/74aeee92-4948-4b8c-b695-d928eb3852db.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/74aeee92-4948-4b8c-b695-d928eb3852db.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/61af8c95-90f9-4815-a158-b659f4705ba9.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/61af8c95-90f9-4815-a158-b659f4705ba9.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/352ba4f0-8f7f-4880-bf3c-7400012db8b4.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/352ba4f0-8f7f-4880-bf3c-7400012db8b4.png"/>
Although the market has begun to compare with the supply-side reform of 2016 and is betting on re-inflation in advance, the inflation narrative based solely on the logic of supply contraction may not be sustainable. Demand-side policies may provide better support for price increase expectations, driving a second wave of &#34;anti-involution trading.&#34; Since July 17, the interest rate swap curve has ended a seven-month inversion, with the FR007 IRS 5Y-1Y quickly returning to positive, indicating that investors have already bet on re-inflation in advance. Although the interest rate spread slightly declined from the end of July to early August, it expanded again to 5.25bp in mid-August, a relatively high position since 2025.
On one hand, the continuous rise in lithium carbonate futures due to production suspension expectations in early August, although still based on the logic of supply contraction, has once again heated up &#34;anti-involution trading,&#34; with the Shanghai Composite Index reaching 3650 points during intraday trading on August 11; on the other hand, the recent introduction of national childcare subsidies has driven up the prices of maternal and infant consumer goods, and the current personal consumption loan interest subsidy policy is also an incremental demand-side policy. The sustainability of inflation expectations may be reinforced again, driving the equity market to continue strengthening under the second wave of &#34;anti-involution trading,&#34; while bond market sentiment is once again suppressed.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6fc3ca82-1df9-428e-a449-5ee133b94e82.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6fc3ca82-1df9-428e-a449-5ee133b94e82.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4c2731c6-f1ce-40ec-b818-29745355028a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4c2731c6-f1ce-40ec-b818-29745355028a.png"/>
<ol>
<li>The window for bullish positions in the bond market may be further postponed.</li>
</ol>
The interest subsidy policy, through the combination of &#34;fiscal support + structural interest rate cuts,&#34; has significantly compressed the total monetary policy easing space of the central bank for the year, and the probability of interest rate cuts this year has further decreased. Considering that the personal loan interest subsidy policy will continue until August 31, 2026, the next interest rate cut window is expected to be postponed to the first quarter of 2026, with the possibility of &#34;defensive interest rate cuts&#34; not ruled out this year.
Demand-side policies may allow inflation expectations to persist, and the strong performance of the equity market in the short term may continuously suppress the bond market, further postponing the bullish window and increasing the probability of a steepening curve. Under the second wave of &#34;anti-involution trading&#34; and the continuous support of demand-side policies, the window for validating inflation expectations is extended. The equity market is expected to still have upward space in the short term, which may continuously suppress the bond market. The yield of the 10-year government bond active coupon has already broken above 1.73% during intraday trading on August 12
No obvious resistance levels have been seen above. Looking ahead, the window for going long in the bond market may further shift. From the curve shape, ultra-long bonds may be more significantly suppressed by the equity market, while the short end may perform relatively stable under a loose liquidity environment, increasing the probability of a steepening curve.
Authors of this article: Qin Han, Zheng Sha, Source: Qin Han Research Notes, Original title: &#34;How to Understand the Personal Consumption Loan Interest Subsidy Policy?&#34;

601878

Zheshang Securities believes that the probability of interest rate cuts within the year has decreased. Against the backdrop of the continuous promotion of "anti-involution" policies, inflation expectations have been temporarily strengthened through the path of supply contraction → price signals → self-reinforcing expectations. It is expected that the next interest rate cut window will be postponed to the first quarter of 2026, and there is a possibility of "defensive interest rate cuts" within the year. The window for bullish positions in the bond market may be further postponed

- The probability of interest rate cuts this year has decreased due to fiscal policies and rising inflation expectations, which may continue to suppress the bond market.  
- The implementation of personal consumption loan subsidies is expected to push the next rate cut window to the first quarter of 2026, while demand-side policies may reinforce inflation expectations.  
- Consequently, the bond market's opportunity for bullish positions may be further delayed, with a higher likelihood of a steepening yield curve.

Wallstreetcn

Zheshang Securities

The significance of "personal consumption loan interest subsidies" to the market: boosting "inflation trades," with the stock market continuously suppressing the bond market