Core Insights - Duration risk is a key consideration in bond investment, measuring sensitivity to interest rate changes, with short-term bonds generally offering lower volatility and more stable performance compared to long-term bonds [1] Group 1: Performance of Short-Term Bonds - Short-term bonds are more likely to benefit from a rate-cutting cycle due to their yields being closer to short-term or risk-free rates, as evidenced by the superior performance of the Asian short-term bond index over long-term bonds during the past year of rate cuts [3] - The defensive attributes of short-term bonds are highlighted during periods of market volatility, as they tend to show greater resilience when investor confidence in long-term credit issuers is challenged [3] - The current macroeconomic environment in Asia supports credit performance, with low inflation levels allowing for greater flexibility in monetary policy [4] Group 2: Credit Fundamentals and Market Dynamics - The credit fundamentals of major Asian sovereign and investment-grade corporate issuers have been improving, with a positive trend in rating upgrades versus downgrades since 2022 [4] - The supply risk faced by investors in the Asian dollar bond market has decreased due to a suppression of new issuances, while demand for high-quality bonds remains strong, providing solid technical support for the bond market [4] - Asian short-term bonds are positioned favorably due to improved fundamentals, strong technicals, and attractive yield levels, with 2-year and 3-year U.S. Treasury yields remaining high [4] Group 3: Riding Strategy for Enhanced Returns - The riding strategy can enhance returns by purchasing longer-duration bonds and selling them before maturity, capitalizing on the downward trend of yields as the bond approaches maturity [6] - An example illustrates that a 4-year bond yielding 4.8% can be sold after one year as a 3-year bond, potentially resulting in a total return of around 5.6% due to capital appreciation from yield decline [6][7] - This strategy emphasizes the importance of analyzing specific yield curves and actively considering slope opportunities, allowing investors to achieve higher returns without additional credit risk [7][8] Group 4: Conclusion on Short-Term Bonds - Short-term bonds are less affected by long-term interest rates and macroeconomic uncertainties, making them an ideal opportunity for strong and stable returns in the context of high yield levels and healthy credit fundamentals in the Asian credit market [8]

Group 1 - The macro growth factor continues to rise, while inflation indicators show a weakening rebound, with domestic CPI turning negative at -0.4% and PPI's decline narrowing to -2.9%, indicating persistent internal demand issues [4] - The Federal Reserve's interest rate cut expectations are driving upward global liquidity expectations, benefiting Asian equity markets, with the Korean Composite Index rising by 5.94% and the Hang Seng Tech Index by 5.31% [4][9] - The A-share market shows a preference for growth styles, with the Sci-Tech 50 Index increasing by 5.48%, while small-cap indices outperform large-cap blue chips [4] Group 2 - Recommendations for asset allocation include favoring high-grade credit bonds in the bond market, adjusting duration flexibly, and focusing on bank and insurance sector movements [5] - In the overseas equity market, the report suggests monitoring interest rate-sensitive sectors due to limited short-term rebound potential for the dollar and significantly raised interest rate cut expectations [5] - For gold, it is recommended to increase allocations to gold and silver as they are core assets during the interest rate cut cycle, with expectations for Shanghai gold to break previous highs [5] Group 3 - The report indicates that the overall liquidity environment remains supportive for market valuation recovery and structural trends, with a significant decrease in average daily trading volume in the A-share market [56] - The A-share valuation levels have increased, with the price-to-earnings ratio rising to 50.38 times and the price-to-book ratio reaching 5.60 times, suggesting that market expectations for future corporate earnings may be overly optimistic [60] - The report highlights that the earnings expectations for A-shares are weaker than historical averages, with a projected rolling one-year earnings growth rate of 10.3% and revenue growth rate of 5.9% [61]