Report Industry Investment Rating - The report gives an investment rating of "Underperform" for the US stock market and the US dollar bond market [1][4] Core Viewpoints of the Report - US economic data shows increasing divergence, with employment data dragging down interest rate cut expectations, and the risk of fiscal dominance is rising. The Trump administration's MBS purchase plan by Fannie Mae and Freddie Mac will intensify the risk of fiscal dominance and the re - evaluation pressure of term premium, and may promote the steepening of the yield curve [1][2][3] Summary of Each Section US Macroeconomic and Liquidity - The US December non - farm payrolls increased by 50,000, falling short of expectations, with the annual increase being the weakest since the pandemic. The unemployment rate dropped from 4.5% to 4.4%, and wage growth was 3.8% year - on - year, but the labor force participation rate declined. After the release of the employment report, the expectation of a Fed rate cut in January almost disappeared, and the first rate cut is expected to be postponed to June, with an annual rate cut of about 50 basis points [1] - The US December manufacturing PMI continued to contract, dropping to 47.9, while the service industry recovered, with the ISM services PMI rising to 54.4, the highest in nearly a year [2] Exchange Rate - There is no specific text - based summary information provided, but there are figures showing the trends of non - US currencies in the past year, recent changes in non - US currencies, Sino - US sovereign bond spreads, etc. [53][59][61] Chinese - funded US Dollar Bonds - There is no specific text - based summary information provided, but there are figures showing the returns of Chinese - funded US dollar bonds since 2023 (by level and industry), the yields and spreads of investment - grade and high - yield Chinese - funded US dollar bonds, and returns in the past two weeks (by level and industry) [67][69][71] Rating Actions - In the past two weeks, the three major international rating agencies took one downgrading action on the issuer of Chinese - funded US dollar bonds. On December 30, 2025, Moody's downgraded the rating of China Vanke Co., Ltd. from Caa2 to Ca [75][76] Investment Recommendations - Adopt a "short - duration core + steepening satellite" configuration. The core position focuses on 3 - 5 - year investment - grade bonds to obtain relatively stable coupon income; the satellite strategy is to go long on the 2s10s spread to capture the opportunity of curve steepening; increase the allocation ratio of TIPS to hedge the inflation stickiness of the service industry, and strictly control the exposure to US bonds over 10 years to avoid the risk of rising long - term interest rates caused by fiscal expansion [3] - In the next two weeks, focus on the December CPI data and public speeches of Fed officials [3]

Core Viewpoint - Global investors are preparing for a highly volatile "Super Friday," with significant events that could reshape short-term pricing logic in the bond, stock, and commodity markets [1]. Economic Data - The U.S. non-farm payroll report for December will be released at 21:30 Beijing time, serving as a crucial reference for assessing economic health and influencing the Federal Reserve's interest rate decisions [1][3]. - Economists predict a job increase of 70,000 in December, with the unemployment rate expected to drop from 4.6% to 4.5% [6]. Federal Reserve Policy - The non-farm payroll data is viewed as a "deciding hammer" for the Fed's policy, with a weak report potentially increasing the likelihood of a rate cut in January to 50% [6]. - Current market pricing indicates only a 10% chance of a rate cut this month, with the next expected in June [6]. Supreme Court Ruling - The market is closely watching the Supreme Court's decision on the legality of Trump’s tariffs, which could have a binary effect on the stock and bond markets [7]. - If tariffs are overturned, the S&P 500 could rise by 0.75%-1%, while maintaining tariffs could lead to a decline of 30-50 basis points [7][8]. Commodity Market Dynamics - The commodity market is facing a "double storm" with the upcoming results of the "232 clause" tariff investigation and significant index rebalancing trades [2][10]. - The annual rebalancing of the Bloomberg Commodity Index has begun, with an expected influx of approximately $7.7 billion in silver sell orders, equating to 13% of total COMEX silver open interest [12]. Market Reactions - Analysts warn that the combination of tariff rulings and commodity market adjustments could lead to extreme volatility, particularly in precious metals like palladium and silver [10][12]. - The potential for a liquidity vacuum could trigger severe repricing in the market, with differing views on whether prices will continue to rise or face significant downward risks once liquidity improves [12][13].

Report Industry Investment Rating - None provided Core Viewpoints - The bond market is expected to maintain a volatile trend this week, with the 10-year Treasury yield continuing to fluctuate between 1.83% and 1.88%. The improvement in cross-year funds is expected to support the continued strength of short-term bonds, and the yield curve may steepen further [3][4] Summary by Directory 1. Last Week's Bond Market Review Secondary Market - The bond market fluctuated last week, with short-term bond yields declining significantly and long-term yields rising slightly. The 10-year Treasury futures main contract rose 0.20% cumulatively. On Friday, the 10-year Treasury yield rose 0.68bp from the previous Friday, while the 1-year Treasury yield dropped 6.75bp, and the term spread widened significantly [5] - On December 22, the bond market weakened under pressure due to stable LPR quotes and rising stock markets. The 10-year Treasury yield rose 1.09bp, and the 10-year futures main contract fell 0.09% [6] - On December 23, the bond market strengthened due to the entry of allocation funds. The 10-year Treasury yield fell 0.63bp, and the 10-year futures main contract rose 0.26% [6] - On December 24, the bond market oscillated under the influence of multiple rumors. The 10-year Treasury yield fell slightly by 0.04bp, and the 10-year futures main contract rose 0.02% [6] - On December 25, the bond market fluctuated narrowly, with short-term bonds remaining warm and medium - and long-term bonds weakening. The 10-year Treasury yield rose 0.30bp, and the 10-year futures main contract fell 0.02% [6] - On December 26, the bond market warmed up due to loose funds and early - year allocation expectations. The 10-year Treasury yield fell 0.10bp, and the 10-year futures main contract rose 0.10% [6][7] Primary Market - Nine interest rate bonds were issued last week, 26 less than the previous week, with a total issuance of 210.1 billion yuan, a decrease of 166 billion yuan. The net financing was 174.8 billion yuan, an increase of 153.9 billion yuan. There were no policy - financial bonds issued or repaid. Treasury issuance and net financing increased, while local bond issuance decreased, and net financing also decreased [15] - The overall subscription demand for interest rate bonds was acceptable. The average subscription multiple for 3 issued Treasuries was 2.74 times, and for 6 local bonds, it was 15.17 times [16] 2. Last Week's Important Events - The central bank conducted 400 billion yuan of MLF operations on December 25. With 300 billion yuan of MLF maturing this month, the net MLF investment in December was 100 billion yuan, which was the tenth consecutive month of increased roll - over, meeting market expectations. This was to support the liquidity of the banking system and help stabilize growth and expectations at the end of the year [18] 3. Real Economy Observation - High - frequency production data showed mixed trends last week. Blast furnace operating rates and petroleum asphalt plant operating rates continued to decline, while semi - steel tire operating rates and daily hot metal production rebounded [19] - In terms of demand, the BDI index continued to decline, while the CCFI index continued to rise. The sales area of commercial housing in 30 large and medium - sized cities continued to increase [19] - In terms of prices, pork prices fell slightly, while most commodity prices rose, including copper and oil prices, and the rebar price fell slightly [19] 4. Last Week's Liquidity Observation - The central bank's net investment in the open market last week was 155.2 billion yuan [26][28] - R007 and DR007 both rose, the issuance rate of inter - bank certificates of deposit of joint - stock banks declined overall, the national - share direct discount rate increased significantly, the volume of pledged repurchase decreased significantly, and the leverage ratio of the inter - bank market first rose and then fell, with a slight overall increase [31][33][36]

Core Viewpoint - The financial market experienced a loose liquidity environment last week, leading to a decline in short-term interest rates, with DR001 dropping to 1.25% and a nearly 7 basis points decrease in the 1-year government bond yield [1] Market Overview - The yield changes for various government bonds from December 19 to December 26, 2025, were as follows: 1-year (-6.75 BP), 2-year (-3.74 BP), 3-year (-3.14 BP), 5-year (-0.73 BP), 7-year (-2.25 BP), 10-year (+0.68 BP), 30-year (-0.19 BP), and 50-year (-1.5 BP) [2] - The 10-year and 30-year government bond yields remained stable at 1.83% and 2.22%, respectively, indicating a steepening yield curve [1] Bond Market Activity - The bond market showed mixed performance with the 10-year government bond yield fluctuating slightly, closing at 1.8355% after a weekly change of +0.05 BP [5] - The trading sentiment in the bond market was cautious as year-end approached, with expectations for more incremental information to guide market movements [1] Government Bond Issuance - A total of 9 government bonds were issued last week, amounting to 210.08 billion yuan, including 3 government bonds worth 208.04 billion yuan and 6 local government bonds worth 2.037 billion yuan [6] International Bond Market - The U.S. Treasury yields experienced fluctuations, with the 10-year yield dropping by 2 BP to 4.72% and the 2-year yield also down by 2 BP to 3.48% [7] - Japan's government approved a record budget for the fiscal year 2026, raising concerns about the sustainability of its fiscal situation as the debt-to-GDP ratio reached 240% [8] Central Bank Operations - The central bank conducted various operations throughout the week, including 7-day reverse repos totaling 673 billion yuan to 930 billion yuan, and maintained the 1-year and 5-year Loan Prime Rates (LPR) at 3% and 3.5%, respectively [9][10] Economic Indicators - The National Bureau of Statistics reported a 0.1% year-on-year increase in profits for industrial enterprises from January to November 2025, with manufacturing profits growing by 5.0% [11] - The People's Bank of China emphasized the need for a stable monetary environment and plans to support key sectors and manage financial risks effectively [12]

Group 1 - The core viewpoint of the articles highlights the strong support for gold in the market, driven by expectations of interest rate cuts by the Federal Reserve in 2026 and increasing geopolitical uncertainties as the holiday season approaches [1][4] - Gold has experienced a significant increase of 65% this year, solidifying its long-term upward trend in the metal market [1] - A survey by Kitco News indicates that 29% of traders believe gold will be the best-performing metal in 2026, while 51% are optimistic about silver leading the market [4] Group 2 - TD Securities forecasts that lower interest rates, ongoing currency depreciation, supply-side factors, and diversified demand will drive gold prices to exceed $4,400 per ounce in the first half of 2026 [4] - Bart Melek, the global head of commodity strategy at TD Securities, emphasizes that the Federal Reserve's interest rate cuts will reduce the cost of holding gold, contributing to the anticipated price increase [4]

Group 1: Silver Fund Premium - The only silver fund in China has reached a historical high premium of 12%, indicating that investors are buying at a price higher than the actual asset value [9][10] - The fund manager has issued multiple warnings about the risks of blindly purchasing high-premium fund shares, suggesting potential significant losses for investors [7][10] - Investors in the silver fund need the silver price to increase by at least 12% to make a profit, or find someone willing to buy at a higher price, otherwise, they face compounded losses [10] Group 2: Yield Curve Steepening - The yield curve is becoming steeper, meaning that long-term interest rates are rising faster than short-term rates, which poses risks for long-term bond fund investors [11][16] - The recent steepening of the yield curve is attributed to an increase in long-term debt issuance and a shift in investment focus towards the stock market, leading to a gradual rise in interest rates [18] - The current economic policy outlook suggests that the steepening trend in the yield curve may continue, indicating a potential for long-term interest rates to rise further [18] Group 3: Market Imbalances - Both the silver fund and the bond market reflect structural imbalances that could lead to value corrections, highlighting the importance of understanding the underlying causes of market distortions [20] - The silver fund's popularity is influenced by external factors such as trade conflicts, while the bond market's previous low rates were a result of supply shortages during an asset scarcity period [20] - Investors are advised to be cautious of potential pricing bubbles driven by market distortions, especially when many retail investors are involved [20]

Group 1 - Devlin Capital is preparing for a steepening yield curve in North America due to significant budget deficits from the U.S. and Canadian governments, driven by tax cuts, military projects, and other priorities [1] - The Canadian government's recent fiscal forecast indicates that the budget deficit will increase by CAD 167.3 billion (approximately USD 121 billion) over the next five years, with new borrowing allocated for defense, housing, and infrastructure spending [1] - The founder of Devlin Capital, Ed Devlin, predicts that the rise in long-term bond yields will outpace short-term rates, leading to a steeper yield curve as government investment plans progress [1] Group 2 - Devlin Capital has engaged in "strategic" trading of Canadian 5-year government bonds, which saw a significant price drop due to unexpectedly strong economic data [2] - The price curve of Canadian 5-year government bonds has become unusually cheap in the past two weeks, according to Devlin [2] - Devlin Capital recently secured its first asset management client, the Canadian Imperial Bank of Commerce, to serve as a sub-advisor for the CIBC Canadian Fixed Income Private Equity Fund [2]

Core Viewpoint - The 10-year U.S. Treasury yield has experienced a significant decline, dropping below the 4% mark, reflecting a reassessment of the U.S. economic outlook and Federal Reserve policy direction [1][2][3] Group 1: Market Dynamics - In November, the 10-year Treasury yield fluctuated between 4.1% and 4.2% before rapidly declining in late November [1][2] - The market is currently pricing in an 86.4% probability of a 25 basis point rate cut by the Federal Reserve in December [2] - The upcoming Federal Reserve meeting is expected to be cautious due to the lack of key economic data, which may lead to a short-term rebound in Treasury yields [5] Group 2: Economic Indicators - Recent economic data indicates a weakening trend, with consumer spending declining and manufacturing facing cost pressures due to tariffs [3][4] - The Federal Reserve's Beige Book reported mixed economic activity across its districts, with some showing slight declines [3] - Concerns about a potential recession are rising as labor market conditions show signs of fatigue [3][4] Group 3: Future Outlook - Analysts predict that the Treasury yield will continue to be influenced by monetary policy expectations, economic fundamentals, inflation outlook, and risk sentiment [4] - The Federal Reserve's end of quantitative tightening and reinvestment in short-term Treasury bills may provide new demand for the bond market [6] - The yield curve may steepen in the future due to ongoing issuance pressures in the long-term bond market, while short-term yields may remain stable due to Federal Reserve demand [7]

Core Insights - Wall Street macro traders are set to achieve their best performance since 2009, driven by clients betting on changes in global central bank interest rate policies [1] Group 1: Revenue Projections - Goldman Sachs, JPMorgan, and Citigroup are expected to generate $165 billion in revenue from fixed income, credit, and commodity trading this year, representing a 10% increase compared to 2024 [1] - G-10 interest rate business revenue is projected to reach $40 billion, marking a five-year high [1] Group 2: Market Influences - Factors such as global central bank interest rate adjustments, uncertainty in tariff policies, concerns over expanding fiscal deficits, and steepening yield curves are contributing to the increase in revenue for rate traders [1] - A similar revenue surge is anticipated in 2026, with industry revenue expected to reach $162 billion [1]

Core Insights - Japan is facing significant fiscal risks similar to the "Truss Shock" in the UK, as the market has not fully priced in the deterioration of supply and demand for ultra-long-term government bonds [1][4] - The Japanese government is finalizing a large-scale economic stimulus plan, with government spending estimated at 21.3 trillion yen, potentially reaching a total of 42.8 trillion yen when including private sector investments, raising concerns about fiscal discipline [1][6] - The Japanese bond market is experiencing a severe sell-off, with the 30-year government bond yield hitting a historical high, and both 10-year and 5-year yields reaching their highest levels since 2008 [1][4] Fiscal Policy Concerns - Nomura Securities warns that ongoing concerns about a "Truss Shock" will lead foreign investors to continue avoiding the Japanese market, exacerbated by a weakening yen and poor performance of ultra-long-term bonds [4][6] - The market is focused on whether the ruling Liberal Democratic Party can gain momentum for further fiscal expansion, which could heighten concerns about fiscal policy [6][7] - The Japanese Finance Minister has raised the urgency of addressing yen depreciation, indicating that the quality and scale of economic stimulus measures should not undermine confidence in the yen or Japanese government bonds [7][8] Yield Curve Dynamics - There is significant potential for the steepening of the yield curve if the supply and demand for ultra-long-term bonds deteriorate further, with the current supply premium indicator for 30-year bonds at 48 basis points, down from a peak of 67 basis points earlier this year [6][8] - The analysis indicates that the yield curve steepening driven by fiscal concerns has not fully reflected the extent of supply and demand deterioration observed in April and May [8][10] Market Reactions - The market's response suggests a lack of effective communication from the government, as expectations for interest rate hikes have not changed despite discussions between the Prime Minister and the Bank of Japan Governor [7][8] - The current market conditions reflect deep investor concerns regarding Japan's policy outlook, emphasizing the need for the government to balance economic stimulus with maintaining fiscal credibility to avoid a "Truss Shock" scenario [10]