CITIC Securities: The overseas interest rate cut cycle environment is easing, and the value of the RMB is gradually strengthening

The Zhitong Finance App learned that CITIC Securities released a research report stating that considering the current internal and external environment, short-term interest rate cuts are necessary, feasible, or rising. Real estate sales data continues to be weak, hampering credit and inflation recovery; with the recent rise in interest rates on local bonds, the financial pressure on local governments has increased, and weak real estate, weak credit, and fiscal pressure may require support from interest rate cuts. The overseas environment is relaxed, the RMB is strengthening in stages, and the spread between China and the US narrows during the overseas interest rate cut cycle; commercial banks have adjusted their debt structure, and net interest spreads have been repaired, and there is room for interest rate cuts.

CITIC Securities's main views are as follows:

Weak real estate is dragging down credit and inflation recovery.

Commercial housing transactions have yet to achieve marginal improvement due to the relaxation of real estate policies. Residents' willingness to buy homes continues to be sluggish, pressure on commercial housing stocks still exists, weak demand and inventory removal slowly coexist, and real estate sales data may need to be boosted by interest rate cuts. Weak real estate sales and investment are dragging down social credit demand, and entity financing needs are weak. Weak credit growth limits the growth of currency multipliers and limits inflation recovery. Weak real estate and weak credit may require short-term interest rate cuts to support them.

Local financial pressure is piling up, and fiscal strength and debt efficiency need to be strengthened.

Interest rates for issuing local government bonds have risen recently. Referring to the issuance situation in previous years, the bank expects that the advance progress of local bond issuance in '26 will still exist, and the financial pressure on local governments may increase further. The interest rate spread between high-interest urban investment bonds and low-interest government bonds gradually narrowed. The low level fluctuated in the second half of 2025. The effectiveness of chemical bonds was under pressure, and the need to cut interest rates in the short term may rise.

The value of the RMB has strengthened in stages, and the overseas interest rate cut cycle environment is relaxed.

Driven by factors such as the decline in the US dollar index, the improvement in China's cross-border capital flow situation, and the marginal recovery in market expectations for domestic economic policies, the recent phased appreciation of the RMB exchange rate has provided the central bank with a window for phased short-term interest rate cuts. The pressure to depreciate the local currency will be relatively manageable in terms of magnitude and pace. The Federal Reserve restarted the cycle of interest rate cuts, the fluctuation in the yield spread on 10-year treasury bonds between China and the US narrowed, and the external conditions for China's monetary policy operation were more relaxed and favorable.

Commercial bank debt restructuring has adjusted, and the pressure on net interest spreads may ease.

Weak social demand is compounded by the policy orientation of low social financing costs. Commercial banks' asset returns are under pressure, and deposit competition is fierce. The cost of long-term stock debt products is rigid during the high interest period, debt-side costs remain high, and net interest spreads continue to be under pressure. Recently, a number of commercial banks have collectively removed medium- to long-term fixed deposit products, actively adjusted debt structures and costs, actively reduced pressure on the debt side, and provided more room for asset-side interest rate cuts.

The broad currency cycle continues, and the long-term debt winning ratio and odds at the beginning of the year may all be fixed to a certain extent.

The reason for the recent correction in the bond market is partly due to a decline in the willingness to allocate accounts and increase positions. The reason behind this may be somewhat correlated with the shortening of bank debt after long-term fixed deposit products are removed from the shelves. From a medium-term perspective, there is a high probability that the central bank's investment in medium- to long-term liquidity instruments will gradually increase, and the share of banks on the debt side will gradually increase, which may help improve commercial banks' demand for long-term bonds. In particular, it is necessary to pay attention to treasury bond trading operations. Apart from the meaning of signals, it is also a way to provide banks with long-term liquidity. Looking back, the problem of long-term mismatch of bank assets may gradually improve under the central bank's liquidity care environment, and the liquidity assessment pressure will also come to an end with the end of New Year's Eve. Combined with this round of adjustments, this round of adjustments is relatively sufficient. It is expected that the bond market's winning rate and odds may be gradually improved in early 2026.

Risk warning: Monetary policy exceeded expectations, monetary policy exceeded expectations, and financial data recovery exceeded expectations.