Core Insights - The article discusses the anticipated delay of the Federal Reserve's interest rate cuts to Q4 2025, indicating a potential shift in the yield curve from a "bear steepening" to a "bull steepening" phase as market participants adjust their expectations for inflation and economic growth [3][10]. Group 1: Interest Rate Expectations - The market now expects the Federal Reserve to initiate rate cuts in Q4 2025, aligning with the company's assessment that rates could drop below 3% once the easing cycle begins [7]. - Current market pricing suggests a terminal rate of 3.35%, which is higher than the company's estimated reasonable rate of 2.75% [7]. - There is a 20% probability that the Federal Reserve will lower rates to below 2.25% by the end of 2026, based on risk-neutral distribution models [7]. Group 2: Yield Curve Dynamics - The yield curve is currently experiencing a "bear steepening" phase, with short-term rates stable while long-term rates rise due to supply pressures and concerns over fiscal sustainability [3][10]. - The 30-year U.S. Treasury yield is approaching a technical resistance level of 5%, which may provide temporary support for long-term rates, limiting further upward movement [3]. Group 3: Credit Market Insights - The credit spread of Chinese dollar-denominated bonds is influenced by U.S.-China trade tensions, with recent fluctuations reflecting market sensitivity to policy signals [11][12]. - The Peterson Institute reports that the average tariff on U.S. exports to China has risen to 126.5%, impacting the credit spread dynamics [12]. - Recent policy directions from China's central government aim to stimulate consumption and stabilize the real estate market, which may enhance risk appetite and affect credit spreads [14]. Group 4: Asset-Backed Securities - Major U.S. banks are showing caution in their demand for agency MBS, with a notable reduction in holdings as they navigate interest rate risks [19]. - The issuance of floating-rate and short-duration CMO securities has surged, indicating a defensive positioning by banks in a rate-sensitive environment [19]. - There is a growing preference for GNMA securities among banks due to their favorable capital treatment, despite expectations of regulatory changes [21].

Group 1: Report Industry Investment Rating - No relevant content provided Group 2: Core Views of the Report - In May, the interest rate was in a volatile market, and the decline of the capital center opened up the carry trade space. Institutions chased credit products with relatively high coupon yields, and funds became the main buyers, driving the credit spreads to narrow across the board. The 3 - 5 - year medium - and low - grade bonds performed better. In June, the supply - demand pattern of credit bonds is unfavorable, and the cost - performance of credit bonds has declined, which may lead to the widening of credit spreads. It is not recommended to chase low - grade medium - and long - term bonds, but there is no need to rush to take profits on medium - and long - term credit bonds. Instead, consider taking profits in mid - to late July. In June, when the coupon and credit spreads are both at low levels, it is appropriate to explore the riding opportunities of medium - and high - grade varieties, especially the 4 - year medium - and high - grade bonds. [1][2][24] - For bank capital bonds, the cost - performance of long - term large - bank capital bonds for insurance institutions is still low, and the allocation demand is difficult to recover in the short term. It may depend more on the start of the trading market. In the process of waiting, coupon assets can still be pursued, and there is still cost - performance in sinking the credit of medium - and short - term bonds. [3] Group 3: Summary According to the Directory 1. June Credit: Sinking within 3 Years and Riding Medium - and High - Grade Bonds 1.1. It is not advisable to chase high for low - grade medium - and long - term bonds. Explore the riding opportunities of medium - and high - grade 4 - year bonds - In May, the bond market was defensive, and the long - end interest rate fluctuated. The decline of the capital center opened up the carry trade space, and funds became the main buyers of credit bonds, driving the credit spreads to narrow across the board. The 3 - 5 - year medium - and low - grade bonds in urban investment bonds performed better, with yields down 12 - 16bp and credit spreads narrowing 12 - 18bp. [8][9] - In June, the demand for credit bonds is facing a decline in the scale of wealth management products at the end of the quarter, while the supply side will see an increase in issuance and net financing month - on - month. The unfavorable supply - demand pattern and the decline in the cost - performance of credit bonds may lead to the widening of credit spreads. [13][16] - In May, the market for low - grade 3 - 5 - year bonds was extreme. There is no need to rush to take profits on medium - and long - term credit bonds in June, but it is not recommended to chase low - grade medium - and long - term bonds. [22][24] - In June, when the coupon and credit spreads are at low levels, it is appropriate to explore the riding opportunities of medium - and high - grade varieties. The current convex point is at the 4 - year term, and the 4 - year medium - and high - grade urban investment bonds are worth deploying. It is also possible to consider replacing 5 - year bonds with similar 4 - year bonds to improve the risk - return ratio of the portfolio. In addition, 3 - year AA(2) and AA urban investment bonds have both coupon income and liquidity and can be used as defensive investment products. [29][30][33] 1.2. Bank capital bonds are waiting for the start of the trading market - In May, institutions valued the coupon cost - performance when allocating bank capital bonds. Medium - and small - bank capital bonds and AA - perpetual bonds with coupon advantages performed better, while the performance of 1 - year large - bank capital bonds and 4 - 5 - year AAA - bank capital bonds was poor. [36] - The cost - performance of long - term large - bank capital bonds for insurance institutions is still low, and the allocation demand is difficult to recover in the short term. The performance of long - term large - bank capital bonds may depend more on the start of the interest - rate bond trading market. In the process of waiting, coupon assets can still be pursued, and there is cost - performance in sinking the credit of medium - and short - term bonds. [38][45] 2. Urban Investment Bonds: The Issuance Interest Rates Have Declined across the Board, and the Buying Interest Remains High - In May, the issuance scale of urban investment bonds continued to decline year - on - year, and the net financing was negative, but the overall issuance sentiment was good. The proportion of 3 - 5 - year issuance continued to rise slightly, and the issuance interest rates of all terms declined, with relatively large declines in the medium - and short - term. [48][49] - The secondary - market buying interest in urban investment bonds was high in May, but the trading sentiment declined in the last week. The trading volume was gradually extended in terms of duration, and the low - grade varieties had a high proportion of trading volume. [58] - The yields of public urban investment bonds in each province declined in May, with the 2 - 3 - year medium - and low - grade bonds performing better. [60] 3. Industrial Bonds: Both Issuance and Net Financing Increased Year - on - Year, and the Yields Declined across the Board - In May, the issuance and net financing of industrial bonds increased year - on - year. The industries with large net financing scales include comprehensive, building decoration, chemical, and transportation industries. The proportion of issuance within 1 year increased significantly, and the issuance interest rates within 3 years declined significantly, while the 3 - 5 - year issuance interest rates increased slightly. [62][64] - The yields of industrial bonds declined across the board in May. Low - grade bonds with coupon advantages and 7 - year medium - and high - grade bonds performed better. The yields of public bonds in each industry declined by 7 - 21bp, with 1 - year AA, 1 - 3 - year AA + and AA performing better. [65][69] 4. Bank Capital Bonds: Low - Grade Bonds Performed Better, and the Trading Sentiment Was Weak - In May 2025, the issuance scale of bank capital bonds increased year - on - year, but due to the large amount of maturity redemptions, the net financing scale decreased year - on - year. [72] - The yields of bank capital bonds generally declined in May, and most of the credit spreads narrowed. Low - grade perpetual bonds performed better, while large - bank capital bonds performed weakly. [76]

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the bond market outlook for June 2025, highlighting the current state of the real estate market and its implications for the bond market [1][4][5]. Core Insights and Arguments 1. **Current Market Conditions**: The bond market is experiencing narrow fluctuations, making it difficult to find trend-based opportunities. Investors are advised to adopt a longer time horizon and actively implement the 97 strategy to gain capital gains and coupon income [1][3]. 2. **Real Estate Market Impact**: The ongoing downward pressure in the real estate market, particularly in first-tier cities, is expected to support the bond market. The number of second-hand homes listed has decreased, and while restrictive policies may ease, transaction and new construction data remain weak, indicating macroeconomic pressure [1][4]. 3. **Monetary Policy Outlook**: Following an unexpected tightening of the funding environment in Q1 2025, the central bank is unlikely to further tighten monetary policy. Factors such as the real estate downturn and external pressures from the US-China tariff conflict contribute to this outlook [1][6]. 4. **Institutional Behavior**: There is a persistent marginal pressure on credit due to insufficient lending and a lack of non-standard investments. Institutions are inclined to eliminate yield convexity, making high-positioning strategies important [1][7]. 5. **Investment Strategy**: For June, while the bond market has a high probability of success, the potential returns are limited. Over the next two to three months, returns may be constrained, but a medium to long-term view supports maintaining a mid-to-high duration 97 strategy to achieve excess returns [1][8]. 6. **Changes in Institutional Behavior**: In H1 2025, institutions have adjusted their investment behaviors due to low interest rates and tightening liquidity. Funds and wealth management products have increased their allocation to 1-5 year credit bonds and secondary capital bonds [1][9][10]. Additional Important Insights 1. **Credit Spread Trends**: The credit spread in the credit bond market has been relatively high, with mainstream credit bond varieties showing a difference of 20 to 40 basis points compared to August 2024. The market has experienced three phases of credit spread movement this year [15]. 2. **Future Market Dynamics**: Looking ahead to H2 2025, factors such as changes in US-China relations, economic fundamentals, and potential policy announcements from the Political Bureau meeting in July could create volatility in the market [11][12]. 3. **Investment Recommendations**: Investors are encouraged to focus on city investment bonds, particularly in provinces like Tianjin and Chongqing, and to explore opportunities in coal, steel, and state-owned enterprises in real estate through short-term coupon digging or increasing duration operations [2][16]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the bond market outlook and investment strategies for the upcoming months.

Report Summary 1. Investment Rating of the Industry The provided content does not mention the industry investment rating. 2. Core View of the Report Interest rate adjustments have led to a divergence in the performance of credit bonds, with the spreads of medium - and short - term high - grade credit bonds widening, while long - term credit bonds have shown strong performance. The spreads of urban investment bonds have fluctuated narrowly, with weaker platforms performing well. Most industrial bond spreads have declined, but coal bonds and private real estate bonds have seen an increase in spreads. The yields of Tier 2 and perpetual bonds have mostly risen, and the spreads of 5 - year medium - and low - grade varieties have compressed. The excess spreads of 3 - year industrial and urban investment perpetual bonds have compressed, while the spreads of 5 - year urban investment bonds have rebounded [3]. 3. Summary by Directory 3.1 Interest Rate Adjustments Lead to Divergence in Credit Bond Performance, with Widening Spreads of Medium - and Short - Term High - Grade Bonds This week, the yields of interest - rate bonds have slightly rebounded. The yields of 1Y, 3Y, and 5Y China Development Bank bonds have increased by 2BP, and those of 7Y and 10Y bonds have increased by 1BP. The yields of medium - and short - term high - grade credit bonds have adjusted, while most other varieties have continued to decline. Credit spreads have mostly declined, with the largest decline in 7Y varieties, and the spreads of medium - and short - term high - grade bonds have widened. Rating spreads and term spreads have mostly declined [3][6]. 3.2 Narrow Fluctuations in Urban Investment Bond Spreads, with Good Performance of Weaker Platforms This week, the spreads of urban investment bonds have fluctuated narrowly, with some differentiation among different regions. The credit spreads of externally rated AAA - level platforms have increased by 1BP, those of AA + - level platforms have remained basically flat, and those of AA - level platforms have decreased by 1BP. When classified by administrative level, the spreads of provincial - level platforms have increased by 1BP, while those of municipal and district - level platforms have remained basically flat [3][10][17]. 3.3 Most Industrial Bond Spreads Decline, while Coal Bonds and Private Real Estate Bonds See an Increase in Spreads Most industrial bond spreads have declined, but coal bonds and private real estate bonds have seen an increase in spreads. This week, the spreads of central and local state - owned real estate bonds have increased by 0 - 1BP, the spreads of mixed - ownership real estate bonds have decreased by 2BP, and the spreads of private real estate bonds have increased by 40BP. The spreads of AAA - level coal bonds have increased by 9BP, those of AA + - level bonds have remained flat, and those of AA - level coal bonds have increased by 1BP. The spreads of steel and chemical bonds at all levels have declined by 0 - 3BP [3][15]. 3.4 Yields of Tier 2 and Perpetual Bonds Mostly Rise, with Compressed Spreads of 5 - Year Medium - and Low - Grade Varieties This week, the yields of Tier 2 and perpetual bonds have mostly risen, and the spreads of 5 - year medium - and low - grade varieties have compressed. Specifically, the yields of 1Y AAA - and AA + commercial bank Tier 2 capital bonds have increased by 4BP, and the yields of AA - level bonds have increased by 2BP, with spreads increasing by 0 - 2BP. The yields of 3Y Tier 2 capital bonds at all levels have increased by 4 - 6BP, and the spreads have increased by 2 - 4BP. The yields of 5Y AAA - and AA + Tier 2 capital bonds have increased by 1 - 2BP, and the spreads have decreased by 0 - 1BP, while the yields of AA - level bonds have decreased by 1BP, and the spreads have compressed by 3BP [27][28]. 3.5 The Excess Spreads of 3 - Year Industrial and Urban Investment Perpetual Bonds Compress, while the Spreads of 5 - Year Urban Investment Bonds Rebound This week, the excess spreads of 3 - year industrial AAA perpetual bonds have decreased by 2.18BP to 9.53BP, at the 11.52% percentile since 2015. The excess spreads of 5 - year industrial AAA perpetual bonds have remained flat at 9.22BP, at the 10.27% percentile since 2015. The excess spreads of 3 - year urban investment AAA perpetual bonds have decreased by 1.12BP to 4.31BP, at the 0.37% percentile. The excess spreads of 5 - year urban investment AAA perpetual bonds have increased by 1.37BP to 10.30BP, at the 9.54% percentile [31]. 3.6 Explanation of the Credit Spread Database Compilation The overall market credit spreads, commercial bank Tier 2 and perpetual spreads, and urban investment/industrial perpetual bond credit spreads are calculated based on ChinaBond medium - and short - term notes and ChinaBond perpetual bond data. The historical percentiles are calculated since the beginning of 2015. The credit spreads of urban investment and industrial bonds are compiled and statistically analyzed by Cinda Securities R & D Center, with historical percentiles also calculated since the beginning of 2015. Specific calculation methods and sample selection criteria are also provided [38].

Market Overview - The bond market continued to show weakness, with most government bond futures closing lower and interbank bond yields rising slightly by around 0.5 basis points [1] - The central bank conducted a net injection of 58.5 billion yuan in the open market, while short-term funding rates exhibited some divergence [1] Bond Futures and Yields - The closing prices for government bond futures showed a decline, with the 30-year main contract down by 0.04% to 119.400, while the 10-year main contract remained flat at 108.730 [2] - The yields on major interbank bonds mostly continued to rise, with the 10-year government bond yield increasing by 0.75 basis points to 1.705% [2] International Bond Markets - In North America, U.S. Treasury yields collectively fell, with the 2-year yield down by 0.74 basis points to 3.974% [3] - In Asia, Japanese bond yields mostly rose, with the 10-year yield increasing by 5.3 basis points to 1.514% [3] - In the Eurozone, yields on 10-year bonds from France, Germany, Italy, and Spain all decreased [3] Primary Market Activity - Agricultural Development Bank's financial bonds had successful bids with yields of 1.4792%, 1.7059%, and 1.7985% for 1.074-year, 3-year, and 10-year maturities, respectively [4] Funding Conditions - The central bank announced a 215.5 billion yuan reverse repurchase operation at a fixed rate of 1.40%, with a net injection of 58.5 billion yuan for the day [5] - The Shibor rates showed mixed performance, with the overnight rate declining by 4.1 basis points to 1.411% [5] Institutional Insights - Citic Securities indicated that uncertainty may persist in the economic landscape through 2025, with a projected GDP growth of 5% for the year [6] - China International Capital Corporation noted that credit bond supply may continue to recover, while short-term credit spreads are at historically low levels [7]

Report Summary 1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints - Pay attention to price fluctuations in the agricultural and black upstream sectors, and technological development in the agricultural midstream [1]. - Keep an eye on the promotion of elderly - care service - related products [1]. 3. Summary by Related Catalogs 3.1 Mid - level Event Overview - **Production Industry**: Sichuan has drafted measures to promote the high - quality development of animal husbandry, including supporting leading livestock enterprises and promoting the transformation and upgrading of pig slaughtering [1]. - **Service Industry**: As of April, there were 216,000 types of age - friendly products in the market, with 28,700 new varieties, especially in assistive walking products and daily - life aids [1]. 3.2 Industry Overview - **Upstream**: The prices of natural rubber, eggs, and glass have declined [1][2]. - **Midstream**: The PTA and asphalt开工率 have increased, while the PX开工率 has decreased [3]. - **Downstream**: The sales of first - tier city commercial housing have declined seasonally, and the number of international and domestic flights has decreased cyclically [3]. - **Market Pricing**: The credit spread of the pharmaceutical and biological industry has slightly declined [4]. 3.3 Industry Credit Spread Tracking - The credit spreads of multiple industries, such as agriculture, forestry, animal husbandry and fishery, mining, and chemical industry, have changed. For example, the credit spread of the agriculture, forestry, animal husbandry and fishery industry decreased from 62.07 last week to 58.65 this week [50]. 3.4 Key Industry Price Index Tracking - Various industries' price indicators have different trends. For example, the spot price of corn decreased by 0.25% year - on - year, and the spot price of natural rubber decreased by 4.07% year - on - year [51].

Summary of Credit Bond Yield Trends in April Overall Credit Bond Performance - In April, credit bond yields exhibited a downward trend overall, with short-term spreads narrowing across the board. However, the decline in medium to long-term yields was less pronounced compared to the same maturity national development bonds, leading to a widening of credit spreads [5][9][11]. - By the end of April, short-term credit spreads remained at historically low levels, while medium to long-term financial bonds were at relatively high historical percentiles [5][11]. Industry-Specific Credit Spread Trends - **Industrial Bonds**: Most AAA-rated industrial bonds saw credit spreads widen in April. Among public bonds, the financial holding sector experienced the largest widening of 8.68 basis points, while the textile and apparel sector saw the most significant narrowing of 4.89 basis points. In private bonds, the basic chemical and retail sectors experienced slight narrowing, while other sectors generally widened by 3-10 basis points, with the steel sector widening the most at 10.86 basis points [13][15]. - **Local Government Bonds**: Credit spreads for local government bonds showed mixed trends, with lower-rated bonds generally narrowing while higher-rated bonds widened. Regions with relatively high spreads, such as Guizhou and Qinghai, mostly saw narrowing, while lower spread regions like Beijing and Shanghai experienced widening [5][9]. - **Financial Bonds**: The credit spreads for bank perpetual bonds mostly narrowed, while the spreads for securities company subordinated bonds and insurance company capital replenishment bonds widened across the board [5][9]. Historical Context - The credit spreads for various types of bonds remained at historically low levels, with AA-rated public and private industrial bonds reaching 30%-50% of their historical percentiles. Financial bonds generally had higher spread levels, exceeding the 30% historical percentile [11][12]. Key Industry Observations - In April, the steel and coal industries saw credit spreads widen across the board, with changes not exceeding 7 basis points. The high-grade bonds in these sectors experienced more significant widening. The electricity and construction engineering sectors also saw most spreads widen [15][16].

Group 1: Report Industry Investment Rating - Not provided in the content Group 2: Core Views of the Report - From May 19 - 23, interest - rate bonds fluctuated, while credit bonds continued to strengthen with declining yields and narrowing credit spreads. 3 - 5 - year bonds, especially 3 - 5 - year urban investment bonds, showed advantages [1][9]. - In May, the net financing of credit bonds was negative and decreased year - on - year, mainly dragged down by urban investment bonds. However, the issuance interest rate declined overall, with a larger decline in the short - to - medium - term [2][10]. - The 3 - 5 - year urban investment bonds have significant coupon cost - effectiveness, large stock scale, and room for credit spread compression [2][14][15]. - For urban investment bonds, it is recommended to select high - cost - effective individual bonds through two ideas: high excess spread and steep yield curve [3][18]. - For bank capital bonds, a strategy combining short - duration downgrading and long - duration investment in large banks is relatively advantageous [5][25]. Group 3: Summary by Related Catalogs 1. Urban Investment Bonds: Net Financing Continues to be Negative, Seeking Returns in Medium - to - Long - Term - Net financing may be negative for three consecutive months. From May 1 - 25, 2025, the issuance was 181.5 billion yuan, the maturity was 252.5 billion yuan, and the net financing deficit expanded to 71 billion yuan [28]. - The primary market issuance sentiment continued to recover, with the proportion of issuance multiples above 3 times increasing by 9 percentage points to 73%. The issuance interest rate continued to decline, with 1 - year - within, 1 - 3 - year, 3 - 5 - year, and over - 5 - year rates decreasing by 13bp, 12bp, 3bp, and 9bp respectively compared to April [2][10][28]. - In the secondary market, yields declined across the board, and spreads continued to compress. The market is looking for returns in the medium - to - long - term, and 3 - 5 - year bonds have become more active in trading [31][33]. 2. Industrial Bonds: Buying Sentiment Recovers, and Trading Continues to Extend Duration - In the primary market, the issuance scale increased slightly year - on - year, but the net financing decreased year - on - year. The issuance sentiment weakened, and the issuance period was concentrated within 1 year. The issuance interest rate of bonds within 3 years declined, while that of bonds over 3 years increased [36]. - In the secondary market, the buying sentiment recovered, and trading continued to extend duration. The proportion of trading over 5 years increased from 9% to 13%, while the proportion within 1 year decreased from 31% to 24% [9]. 3. Bank Capital Bonds: Medium - to - Long - Duration Secondary Capital Bonds Perform Well - In the primary market, from May 19 - 23, 2025, some banks issued 5 + 5 - year secondary capital bonds [42]. - In the secondary market, the yields of bank capital bonds generally declined by 1 - 9bp, and spreads narrowed across the board. Medium - to - long - duration secondary capital bonds performed well [4][5][42].

Report Industry Investment Rating No investment rating for the industry is provided in the report. Report's Core View - Fundamental factors are unlikely to break the narrow - range fluctuation pattern of the bond market. The decline in deposit rates is a short - term positive for non - bank allocation demand. The bond market is reasonably priced compared to credit and other broad - spectrum interest rates, but has a lower cost - performance ratio compared to the stock market. Chinese bonds are a global interest - rate low - lying area. In the short term, continue to focus on non - bank allocation, PMI data, and bond supply. The judgment that the 10 - year Treasury bond will fluctuate in the range of 1.5% - 1.8% remains unchanged. [6] - In terms of operations, continue to recommend 3 - and 5 - year credit bonds and Tier 2 capital bonds, and seek opportunities for spread compression through short - end credit downgrading and long - end high - grade bonds. Long - term and ultra - long - term interest - rate bonds are more suitable for trading than allocation, and continue to buy on dips. The cost - performance ratio of the previously recommended ultra - long local bonds has slightly weakened, while that of policy - financial bonds has slightly increased. [6] Summary by Relevant Catalogs This Week's Strategy View: Looking for Opportunities along the Bond Market Pricing System - Last week, the funding situation was stable. Economic data was released, and the cuts in deposit rates and LPR were implemented. The auction result of the 50 - year Treasury bond was poor, and yields fluctuated within a narrow range. Throughout the week, the yield of the active 10 - year Treasury bond rose 1BP to 1.69% compared to the previous week, the 10 - year CDB bond yield fell 1BP to 1.74%, and the 30 - year Treasury bond yield remained unchanged at 1.92%. The 10 - 1 - year term spread widened, and credit spreads remained largely unchanged. [10] - The bond market has been in a narrow - range fluctuation pattern since the suspension of Sino - US tariffs. Last week's deposit - rate cut failed to break the bond - market equilibrium. Currently, investors generally believe that the bond market has a high probability of winning but a low odds ratio. The report explores bond - market pricing from multiple dimensions. [11] Comparison with Credit and Other Broad - Spectrum Interest Rates - The pricing of the bond market is basically reasonable. There is a transmission between bonds and deposits/loans through the price - comparison effect and institutional behavior. After the recent LPR cut, some banks maintained the original 3% mortgage rate for new mortgages. If 3% is the bottom line for mortgage rates, the 30 - year Treasury bond rate may have also bottomed out. Currently, the 30 - year Treasury bond is 2BP higher than the after - tax mortgage rate, with limited upside. [12][13] - In practice, three factors prevent a simple comparison between bonds and loans: different availability of the two types of assets, the influence of non - bank trading desks not being considered, and banks' asset - allocation decisions being affected by multiple factors other than just returns. The cut in deposit rates directly benefits non - bank bond allocation. In the future, banks will face increased difficulty in liability management. [14][15] Comparison with Overseas Markets - Chinese bonds have become a global interest - rate low - lying area, but the short - term adjustment risk is limited. Recently, the sharp rise in US and Japanese bond yields has attracted global attention. The root causes are the reshaping of the global financial order, high debt levels, tight monetary policies, and large - scale long - bond auctions. [2] - China's interest rates are at a global low, especially at the ultra - long end. However, there is no need to worry about Chinese bond yields rising in tandem with overseas markets in the short term, as the influence of overseas interest rates on the Chinese bond market is limited. In the process of global capital reallocation, Chinese bonds and stocks may be relatively beneficiary assets. In the long run (2 - 3 years), there are concerns about the repricing of term spreads. [2][22][26] Comparison with the Stock Market - The bond market has a lower cost - performance ratio compared to the stock market. Currently, the dividend yields of the CSI 300, the dividend index, and the Hang Seng High - Dividend Index are approximately 3.4%, 6.7%, and 8% respectively. Considering the tax - exemption effect of insurance investments in Hong Kong stocks, their value far exceeds that of investing in ultra - long bonds. [3] - In the past two years, the imbalance in the cost - performance ratio between stocks and bonds has persisted. The core reason is that stocks carry price - fluctuation risks while offering high dividends. If the stock market can maintain an upward - trending and less - volatile pattern, there is a possibility of bond - market funds gradually flowing into the stock market to achieve a balance between stocks and bonds. [3] Comparison of Spreads among Bond Market Varieties - Regarding the pricing model of policy rates → funds → short - end → long - end, currently, the role of the MLF policy rate has diminished, and OMO is the most important pricing anchor in the bond market. However, the current term spreads are relatively flat, making it difficult to price long - term and ultra - long - term bonds according to historical rules. In the future, it is difficult for the yield - curve shape to steepen trendily, and investors should focus on finding relative opportunities. [31][32] - In terms of credit spreads, in the context of debt resolution and stricter urban - investment supervision in recent years, the "scarcity of credit assets" has become more prominent. Credit spreads still have room for compression. Specifically, avoid 1 - year ordinary credit bonds for now; 3 - 5 - year credit spreads still offer good value, and high - grade (AAA) credit spreads over 5 years are relatively attractive. Currently, inter - bank certificates of deposit have a better cost - performance ratio than short - term credit bonds, but there may be supply - demand disturbances at certain times. [33][34] - The spreads among bond varieties have significantly compressed. Low - liquidity policy - financial bonds have a slightly better cost - performance ratio, while the cost - performance ratio of local bonds has slightly weakened. [40] This Week's Operation Suggestions - Currently, the bond - market pricing is reasonable compared to credit and other broad - spectrum interest rates, but has a lower cost - performance ratio compared to overseas markets and the stock market. The fundamentals are still in a state of differentiation and bottom - grinding. The decline in deposit rates is positive for non - bank allocation demand. The long - term trend of the bond market has not reversed, but the trading space is limited, and it remains in a narrow - range fluctuation pattern in the short term. [42] - The market lacks major catalysts, so only short - term information such as funds and institutional behavior can be traded. This week, pay attention to PMI and credit - demand data, which are expected to be relatively strong and slightly negative for bonds. In terms of funds, as this week enters the end - of - month trading period, the funding center may rise slightly, but the central bank is expected to provide active support. In terms of institutional behavior, the deposit - rate cut last week led to an increase in inter - bank certificates of deposit and increased subscriptions of funds by wealth - management products, indicating that deposit migration is occurring, providing real - world support for bond - market allocation demand. [42] - In the medium term, the decline in broad - spectrum interest rates will have a certain impact on the bond market. The low of the 10 - year Treasury bond this year is expected to be around 1.5%, but it may be difficult to break through in the second quarter. The upper limit is expected to be between 1.7% - 1.8%. Therefore, if there is further adjustment from the current level, consider entering the market for allocation. [42] - In terms of operations, continue to recommend 3 - and 5 - year credit bonds and Tier 2 capital bonds, and seek opportunities for spread compression through short - end credit downgrading and long - end high - grade bonds. The narrow - range fluctuation pattern of long - term and ultra - long - term interest - rate bonds remains unchanged, so continue to buy on dips. The cost - performance ratio of the previously recommended ultra - long local bonds has slightly weakened, while that of policy - financial bonds has slightly increased. Inter - bank certificates of deposit are initially in the allocation range, but may fluctuate at relatively high levels due to liability - side disturbances. [44] This Week's Core Focus This week, focus on China's industrial - enterprise profits in April, the official manufacturing PMI in May, the euro - zone economic sentiment index in May, the Fed's monetary - policy meeting minutes in May, the US PCE in April, and the end - of - month funding situation. [45]

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