Summary of Key Points Core Viewpoint - Geopolitical conflicts are causing short-term risk premiums, but the A-share market shows resilience, with a mid-term focus returning to fundamentals and policy direction [1][5]. Government Work Report - The economic growth target for this year is set at 4.5%-5%, with a focus on quality growth rather than aggressive stimulus. Other targets include an urban unemployment rate of around 5.5%, over 12 million new urban jobs, and a consumer price increase of about 2% [3]. Equity Market - A-share market resilience is noted despite geopolitical tensions, with a focus on the impact of oil prices and inflation. The long-term drivers for A-share growth include the restructuring of international order and industrial innovation [5][6]. - The technology growth sector is expected to dominate the market, with structural opportunities continuing to emerge despite short-term volatility [6][7]. - By 2026, a convergence of new and old asset markets is anticipated, with technology assets showing significant mid-term potential [7]. Industry Research - The military industry is highlighted as having long-term investment value, with a notable increase in the military index by 27.40% over the past six months [12]. - The escalation of the Middle East situation is expected to benefit the metals and chemicals sectors, with a focus on self-sufficient resource companies [12]. - A significant turning point for oil prices is projected around 2026, influenced by structural declines in U.S. shale oil production and geopolitical tensions [13]. Macro and Fixed Income - Real estate prices in major cities are expected to stabilize, with inventory levels indicating a natural bottoming out [19]. - A credit downshift strategy remains favorable, with a focus on structural opportunities in the current "asset shortage" environment [20]. - The bond market is anticipated to recover, supported by a stable liquidity environment and reduced government bond supply pressure [21]. Asset Allocation - The HALO strategy emphasizes six asset categories, focusing on heavy assets with low elimination risk, such as industrial metals and energy sectors, as potential safe havens [23].

Core Insights - The current credit bond market does not require profit-taking, with a focus on structural opportunities, suggesting that credit bonds are more favorable than interest rate bonds, and urban investment bonds are preferred over perpetual bonds [1][3][19] - The strategy of "asset scarcity" remains unchanged, favoring a downward strategy in credit bonds, with recommendations to continue focusing on short to medium-term durations in March [1][3][19] - Given the absolute low level of yield spreads, a steady approach is advisable, with a suggestion to control duration, ideally around 3 years [1][3][19] March Credit Bond Outlook - The market has shown a continuation of the bullish trend, with credit bond yields declining, approaching the lows seen in July 2025. The market faces uncertainty on whether it will break downward or return to a range-bound movement [1][16] - Historical data indicates a high success rate for bullish positions in March, with an average decline of 4.27 basis points for 10-year government bonds in March over the past decade, excluding the impact of the Russia-Ukraine conflict in March 2022 [1][16] - Factors contributing to the seasonal characteristics in March include increased liquidity post-Spring Festival, reduced policy uncertainty following the Two Sessions, and the initiation of reserve-style allocations by wealth management and insurance funds [1][16] Institutional Behavior - Institutions typically increase their allocation to credit bonds in March, with net buying data indicating that insurance, wealth management, and other products are likely to boost their credit bond allocations [2][8] - Fund allocations to credit bonds are influenced by the liability side, with marginal changes expected in the first quarter of 2026. However, the opening of amortized bond funds in March is anticipated to reach nearly 110 billion yuan, indicating potential demand for credit bonds with maturities of 1 year and over 5 years [2][8] Investment Opportunities - Mainstream institutions can explore yield enhancement within the 2%-2.5% range. As of March 4, 2026, 55%-60% of urban investment bonds and 60%-65% of industrial bonds yield below 2% [4][20] - The banking sector is experiencing a widening gap between deposit and loan growth, with a historical high of 3.78 percentage points in January 2026, indicating a structural asset scarcity that may keep funding rates low and enhance the certainty of short-term credit bonds [4][20] Secondary Market Performance - In February, credit bond yields generally declined, with short-end strategies performing well. The credit spread dynamics showed divergence, suggesting that further comprehensive declines may require effective downward breakthroughs in interest rates [8][19] - The liquidity of individual bonds has seen a slight decrease, but trading sentiment remains positive, with low-quality issuers facing unfavorable trading conditions due to either reluctance to sell or reduced buying activity [8][19] Primary Market Dynamics - February saw a significant contraction in credit bond issuance and net financing, with issuance down 51% month-on-month and 26% year-on-year, reflecting the impact of the Spring Festival and fewer working days [9][19] - The subscription enthusiasm for credit bonds in the primary market has slightly increased, remaining at a historical average level, with urban investment bonds maintaining the highest subscription interest [9][19]

Macro - The manufacturing and construction sectors experienced a decline in activity due to the impact of the Spring Festival, while the service sector saw a rebound driven by consumer spending during the holiday [5] - There is an increasing divergence among enterprises, with large companies continuing to expand while small companies' performance has dropped to a three-year low [5] - The price increase trend is spreading downstream, and the differentiation between old and new growth drivers persists, with high-tech manufacturing continuing to expand while consumer goods manufacturing and high-energy-consuming industries remain at low levels [5] Financial Engineering - The A-share market showed a volatile upward trend, with the CSI 1000 index rising by 4.34% week-on-week, leading the major broad-based indices [6] - The market's risk appetite has improved, as indicated by a positive increase in weekly financing amounts, although further upward movement may require increased trading volume [6] - Recent changes in the Middle East have led to fluctuations in resource prices, which may affect the performance of related sectors in the equity market [6] Fixed Income - In March, credit bond volatility risks are expected to increase, suggesting a cautious approach towards low liquidity and high valuation elasticity products [7] - Short-term credit bonds, due to their relatively better liquidity, are recommended for defensive positioning [7] - With high-grade credit spreads compressed to historical lows, there is limited space for yield enhancement, prompting a strategy shift towards lower-grade credits to increase returns [7] REITs - The secondary market prices of publicly listed REITs in China showed a downward trend in February, with the CSI REITs closing at 796.08, reflecting a return rate of -1.66% [8] - Compared to other major asset classes, REITs ranked lower in return rates, with gold, convertible bonds, and oil performing better [8] Banking - The impact of the Spring Festival on credit in February was minimal, with loan growth expected to be around one trillion yuan due to demand constraints and regulatory requirements [6] - The social financing growth rate is projected to slightly decline to 8.1% by the end of the month, influenced by the pre-issuance of government bonds [6] - M2 and M1 growth rates have also been affected by the Spring Festival timing [6] Metals - The price of rhenium has increased by 36% since January, while the production of electrolytic cobalt has decreased by 93% year-on-year [8] - Prices for various new materials have shown mixed trends, with platinum prices rising by 17.1% [8]

Group 1 - The overall yield of credit bonds has decreased, following the trend of interest rate bonds, with credit spreads generally narrowing due to strong performance in the first quarter as institutions seek to allocate to coupon assets [4] - Insurance institutions have continued to play a leading role in credit bond allocation, maintaining net purchases across various maturities [4] - Funds have significantly increased net purchases of bonds with maturities of 5 years or less, particularly focusing on high liquidity bonds with maturities of 3 years or less, with notable net buying in the 0-1 year category in February [4] Group 2 - Historical patterns indicate that the bond market typically performs well in the 30 trading days following the Two Sessions, with a success rate of 83.3% after T+10 [5] - Key factors to monitor in March 2026 include changes in liquidity, potential pressure from the end of the month on credit bonds, and the impact of local government bond supply on the market [5] - The large scale of open-ended amortized cost bond funds in March 2026, totaling 132.128 billion, is expected to provide strong incremental capital for the credit bond market [5] Group 3 - In March, the volatility risk of credit bonds may increase, suggesting caution for weaker liquidity and highly elastic valuation products [6] - Short-term credit bonds are recommended for their relative liquidity and defensive attributes, while a credit downshift strategy may be employed to enhance yields due to limited coupon digging space [7] - For long-duration credit bonds, despite existing coupon value, it is advised to maintain moderate positions and consider timely reductions or structural optimizations due to market uncertainties in March [7]

Group 1 - The overall credit bond market showed a strong rebound in February 2026, with credit spreads generally narrowing due to a favorable liquidity environment and institutional demand for coupon assets [1][10][9] - Insurance institutions continued to play a leading role in credit bond allocation, maintaining net purchases across various maturities, particularly focusing on short-term bonds [17][1] - Funds significantly increased their net purchases of bonds with maturities below 5 years, especially in the 0-1 year category, while showing caution towards longer-term bonds [17][1] Group 2 - The outlook for the bond market in March 2026 suggests a cautious approach towards credit bonds due to potential volatility, with a recommendation to focus on short-term bonds for defensive positioning [2][1] - The opening of amortized cost bond funds in March is expected to bring substantial demand for credit bonds, particularly in the 5-year and below category, which may lead to further compression of spreads [2][1] - The issuance of local government bonds in March is anticipated to remain high, potentially exerting pressure on liquidity and affecting credit bond performance [4][1] Group 3 - The credit bond market experienced a significant decline in issuance in February 2026, with a total of 620.27 billion yuan issued, a decrease of 47.76% month-on-month [25][1] - The total outstanding credit bond balance reached 31.89 trillion yuan by the end of February 2026, indicating a substantial market size [25][1] - The local government bond issuance in February was 278.75 billion yuan, reflecting a decrease of 37.03% month-on-month, with net financing of 34.69 billion yuan [26][1]

Group 1 - The overall credit bond market showed a strong rebound in February, with credit spreads generally narrowing due to a favorable liquidity environment and institutional demand for coupon assets [1][10][9] - Insurance institutions continued to play a leading role in credit bond allocation, maintaining net purchases across various maturities, particularly focusing on short-term bonds [1][17] - Funds showed significant net buying activity for bonds with maturities below 5 years, especially for high liquidity products with maturities of 0-1 year, while being cautious towards longer-term bonds [1][17] Group 2 - The outlook for the bond market in March suggests a cautious approach towards credit bonds due to potential volatility, with a recommendation to focus on short-term credit bonds for defensive positioning [2] - The opening of amortized cost bond funds in March is expected to bring strong demand for credit bonds, particularly for shorter maturities, which may lead to further compression of spreads [2][4] - The historical trend indicates that the bond market typically performs well in the 30 trading days following the National People's Congress, providing a favorable window for bond allocation [2] Group 3 - The issuance of credit bonds in February totaled 620.27 billion, a decrease of 47.76% month-on-month, with a total repayment amount of 479.14 billion, resulting in a net financing of 141.13 billion [25] - The total outstanding balance of credit bonds reached 31.89 trillion by the end of February, indicating a significant market size [25] - The issuance of local government bonds in February was 278.75 billion, reflecting a decrease of 37.03% month-on-month, with net financing of 34.69 billion [26]

Core Insights - The bond market has experienced increased volatility in 2023, contrasting with the previous two years of consistent gains, making it challenging for fund managers to achieve returns [1][2] - Many bond fund managers are now relying on trading as a key method to generate excess returns due to diminishing returns from credit downgrades [1][2] - The need for enhanced trading capabilities and macroeconomic analysis has become critical for investment teams in the current market environment [1][4] Group 1: Market Conditions - Over two-thirds of medium to long-term pure bond funds reported negative returns in the first quarter of 2023, a rare occurrence in the industry [2] - The expectation of significant returns from interest rate declines has become unrealistic, leading to a focus on timing trades as a crucial strategy [2][3] - The overall performance of bond funds has highlighted the inadequacies in trading skills among some fund managers, particularly those who lack experience in dynamic market conditions [3] Group 2: Strategies for Improvement - Investment teams are prioritizing the enhancement of trading capabilities by developing comprehensive investment frameworks that consider various economic and market factors [4][5] - The use of quantitative strategies is becoming increasingly important, with teams monitoring market bond durations to optimize investment accounts [4] - A shift in analytical approach is noted, moving from seeking a single correct logic to employing scenario analysis and market expectation dynamics [5] Group 3: Future Outlook - The bond market is expected to remain in a narrow fluctuation pattern due to ongoing uncertainties and the need for further policy measures [6] - The fundamental logic of the bond market is anticipated to persist, despite high pricing levels, as macroeconomic trends continue to evolve [6] - Investment strategies will need to adapt to the central bank's stance on interest rates, which is a critical factor influencing the bond market [6]

Core Viewpoint - The bond market has shown a strong performance recently, with various fixed-income products experiencing growth in returns, particularly those with embedded options [2][3][11]. Summary by Sections Fixed Income Product Performance - In the past month, the bond market experienced fluctuations, with rates generally declining. Various stable products saw an increase in net value, especially option-embedded fixed income products, followed by medium- and long-term bond funds [3][9]. - As of June 18, the monthly returns for different products were as follows: option-embedded bond funds at 0.54% (previously 0.62%), medium-term bond funds at 0.31% (previously 0.13%), short-term bond funds at 0.18% (previously 0.19%), high-grade interbank certificates of deposit index funds at 0.15% (previously 0.18%), and cash management products at 0.11% (unchanged) [3][10]. Bond Market Review - The bond market showed a pattern of weakness followed by strength, influenced by market sentiment and liquidity conditions. The tightening of liquidity in late May, combined with the U.S.-China trade meeting in early June, initially suppressed bond market performance. However, after the month transitioned, the central bank's supportive stance on liquidity led to a recovery [11][12]. - The one-year AAA interbank certificate of deposit rate fell to approximately 1.65%, a slight decrease from the previous month, indicating a shift towards a more favorable liquidity environment [12][15]. Market Outlook - In the short term, the bond market is expected to maintain a low-interest, low-volatility trend, with the 10-year government bond yield projected to fluctuate between 1.5% and 1.8%, centered around 1.7% [31][34]. - Credit bonds are anticipated to outperform interest rate bonds, with credit spreads likely to remain relatively low, minimizing the risk of significant widening [34]. Asset Management Industry Trends - The scale of wealth management products increased to 31.3 trillion yuan by the end of May, reflecting a 1.6% month-on-month growth. This growth is attributed to the decline in bank deposit rates, which has made wealth management products more attractive [36]. - On May 23, the National Financial Regulatory Administration released a draft for asset management product information disclosure, allowing for more flexible performance benchmark disclosures, which may influence investor behavior in the long term [36]. Investment Strategy Recommendations - For investors needing liquidity management, maintaining cash-like products and considering stable low-volatility wealth management or short-term bond funds is advisable [39]. - For conservative investors, holding pure bond products with a potential extension of duration is recommended, especially as the 10-year government bond yield approaches 1.7%-1.8% [40]. - For more advanced conservative investors, continuing to hold fixed-income plus products is suggested, with a focus on incorporating convertible bonds and equity assets into the strategy [41].

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - The supply of urban investment bonds has seasonally weakened, and the market has entered a stock or even de - stock phase. Weak - qualified entities are accelerating their exit, increasing the scarcity of coupon assets. The secondary market trading activity has increased due to the "deposit relocation" [1][12][14]. 3. Summary According to Relevant Catalogs 2.1 Weak Entities Accelerate Exit, Coupon Scarcity Increases 2.1.1 Issuance and Repayment: Seasonal Weakening of Urban Investment Bond Supply - As of May 31, 2025, 3797 urban investment entities under the HA scope issued 280.2 billion yuan of bonds and repaid 351.5 billion yuan, with a net repayment of 71.3 billion yuan. The net repayment scale decreased by about 10.2 billion yuan month - on - month and increased by about 37.3 billion yuan year - on - year. The issuance scale was the lowest in the same period in the past three years. Since 2024, the cumulative net repayment has been 2.5 billion yuan. AA and below weak - qualified entities have cumulatively net - repaid 585.7 billion yuan, while AAA entities have net - borrowed 519 billion yuan [12][16]. - From an administrative perspective, all administrative - level entities were in a net - repayment state in May. The net - repayment amounts from high to low were prefecture - level cities (24.3 billion yuan), county - level regions (17.1 billion yuan), provincial - level (16.8 billion yuan), and park - level (13.1 billion yuan) [16]. - From a rating perspective, all rating entities were in a net - repayment state in May. The net - repayment amounts from high to low were AA (27.7 billion yuan), AAA (25.6 billion yuan), AA+ (15.8 billion yuan), below AA (140 million yuan), and unrated (90 million yuan) [17]. - From a variety perspective, the net financing amounts of various bond varieties from high to low were corporate bonds (11.4 billion yuan) and private placement bonds (6.6 billion yuan). The net - repayment amounts from high to low were SCP (44.2 billion yuan), enterprise bonds (21.4 billion yuan), MTN (10.2 billion yuan), CP (8.6 billion yuan), and PPN (4.9 billion yuan) [17]. - From a term perspective, only bonds with a term of over 3 years were in a net - borrowing state in May, with a net borrowing of 35.9 billion yuan. The net - repayment amounts of other term bonds from high to low were 2 - year (46.3 billion yuan), 6 - month to 1 - year (39 billion yuan), 3 - year (9.2 billion yuan), 6 - month and below (8.6 billion yuan), and 1 - year (4.2 billion yuan) [17]. - From a regional perspective, the provinces with the highest net financing in May were Shandong (7.3 billion yuan), Fujian (2.5 billion yuan), and Tibet (1 billion yuan). The provinces with the highest net - repayment were Jiangsu (18.2 billion yuan), Zhejiang (9.2 billion yuan), and Hubei (8.5 billion yuan) [18]. 2.1.2 Maturity Pressure: About 7.7 Trillion Yuan to Mature Before the End of 2026 - As of May 31, 2025, the maturity pressure of 3797 urban investment bonds under the HA scope before the end of 2026 is about 7.7 trillion yuan, with 3.4 trillion yuan in 2025 and 4.4 trillion yuan in 2026. By the end of 2025, the remaining maturity pressure is about 335.06 billion yuan (assuming 100% exercise of callable bonds), with maturity peaks in June (56.93 billion yuan), August (53.09 billion yuan), and September (57.12 billion yuan) [39]. - The top 5 provinces with the remaining maturity amounts by the end of 2025 are Jiangsu, Shandong, Zhejiang, Sichuan, and Hubei [40]. - The top 5 cities are Qingdao, Nanjing, Suzhou, Chengdu, and Nantong [41]. - The top 5 districts and counties are Jiangning District of Nanjing, Huangdao District (including the West Coast New Area) of Qingdao, Pudong New Area of Shanghai, Huangpu District of Guangzhou, and Wuzhong District of Suzhou [41]. - The top 5 parks are Xi'an High - tech Industrial Development Zone, Guangzhou Economic and Technological Development Zone, Suzhou High - tech Industrial Development Zone, Zhengzhou Airport Economy Comprehensive Experimental Zone, and Taizhou Medical High - tech Industrial Development Zone [41]. - The top 5 entities are Jiangsu Communications Holding Co., Ltd., Hunan Expressway Group Co., Ltd., Zhejiang Communications Investment Group Co., Ltd., Shandong Hi - Speed Group Co., Ltd., and Xi'an Hi - tech Holdings Co., Ltd. [41]. 2.1.3 Primary Subscription: Average of 3.00 Times, Continued High - Level Allocation Sentiment - As of May 31, 2025, among the urban investment bonds issued in the month, 103.3 billion yuan of bonds disclosed bidding data, with a cumulative bidding scale of 309.7 billion yuan and an average subscription multiple of 3.00 times, a decrease of 0.06 times month - on - month [44]. - In terms of administrative levels, the subscription sentiment of county - level and park - level entities significantly increased. The average subscription multiples of provincial, prefecture - level, county - level, and park - level entities were 1.99 times (a decrease of 0.26 times month - on - month), 3.16 times (a decrease of 0.23 times month - on - month), 4.09 times (an increase of 0.98 times month - on - month), and 3.47 times (an increase of 0.45 times month - on - month) respectively [46]. - In terms of bond ratings, investors favored the credit - sinking strategy. The average subscription multiples of AAA, AA+, AA, AA(2), and AA - were 1.26 times (a decrease of 0.36 times month - on - month), 2.94 times (a decrease of 0.08 times month - on - month), 4.24 times (an increase of 0.75 times month - on - month), 3.51 times (an increase of 0.27 times month - on - month), and 2.53 times (a decrease of 0.26 times month - on - month) respectively [46]. - In terms of bond terms, the sentiment for long - term bonds remained high. The average subscription multiples for bonds within 1 year, 1 - 2 years, 2 - 3 years, 3 - 5 years, and over 5 years were 2.14 times (a decrease of 0.4 times month - on - month), 3.57 times (an increase of 0.18 times month - on - month), 4.2 times (an increase of 1.19 times month - on - month), 3.27 times (a decrease of 0.15 times month - on - month), and 3.47 times (an increase of 0.4 times month - on - month) respectively [47]. 2.2 Deposit Relocation Triggers Credit Market, Trading Activity Increases 2.2.1 Valuation Spread: Yield Continues to Decline Driven by Demand - Side - In May 2025, due to the loose monetary policy, the central level of capital interest rates declined, and the coupon advantage of credit bonds became prominent. The reduction of bank deposit rates led to the "deposit relocation" effect, increasing the allocation demand for credit bonds by wealth management products. Urban investment bond yields showed a unilateral decline. However, at the end of the month, the bond market adjusted due to tariff policy fluctuations and institutional behavior changes [54]. - In the short - term, the spreads of each implied rating for short - term bonds have reached historical lows. The main capital gain space may lie in the compression of grade spreads and term spreads. For 1 - year bonds, the yields of AAA, AA+, AA, and AA(2) decreased by 9.1bp, 9.1bp, 9.1bp, and 10.1bp to 1.74%, 1.79%, 1.84%, and 1.89% respectively; for 3 - year bonds, they decreased by 9.0bp, 9.0bp, 14.0bp, and 16.0bp to 1.84%, 1.92%, 2.00%, and 2.11% respectively; for 5 - year bonds, they decreased by 7.5bp, 7.5bp, 12.5bp, and 13.5bp to 1.96%, 2.05%, 2.17%, and 2.37% respectively [55]. - Vertically, short - term spreads have reached new lows, while term spreads and grade spreads still have room for compression. As of May 31, the valuation yields of urban investment bonds with each implied rating from 1 - year to 5 - year have reached historical lows, and the three - year percentiles are all at extremely low levels of 5% and below. The credit spreads have also reached lows, with the three - year percentiles of 1 - year and 3 - year ratings below 10%. Only 5 - year bonds still have compression space [59]. 2.2.2 Secondary Trading: Increased Activity Month - on - Month, Medium - and Long - Term Bonds Lead the Gains - In May 2025, the sample trading records of urban investment bonds were about 16,000, with an average daily trading volume of about 841, a month - on - month increase of 1.1%. The average daily trading volume reached a new high this year. The taken trading volume was about 12,000, accounting for 76%, an increase of 3 percentage points from the previous month. The long - short ratio was 3.41, an increase of about 0.46 basis points from the previous month [63]. - In terms of bond ratings, the trading proportion of AAA - rated bonds was 9.7%, an increase of 0.4 percentage points month - on - month; AA+ was 21.5%, a decrease of 0.6 percentage points; AA was 23.7%, an increase of 2.2 percentage points; AA(2) was 35.8%, a slight decrease of 0.1 percentage point; AA - was 9.4%, a decrease of 1.8 percentage points. - In terms of terms, the trading proportion of bonds within 1 year was 31.2%, a significant decrease of 7.4 percentage points month - on - month; 1 - 3 years was 44.7%, an increase of 1.9 percentage points; 3 - 5 years was 21.0%, a significant increase of 4.9 percentage points; over 5 years was 3.3%, an increase of 0.7 percentage points [64].

Core Insights - The bond market in China has experienced increased volatility in 2023, contrasting with the previous years of consistent growth, making it challenging for fund managers to generate returns [1][2] - Many bond fund managers are now focusing on trading as a key method to achieve excess returns due to the diminishing effectiveness of credit downgrading strategies [1][2] - The need for enhanced trading capabilities and macroeconomic analysis has become critical for investment teams in response to the rapidly changing market environment [1][2] Market Environment - Over two-thirds of medium to long-term pure bond funds reported negative returns in the first quarter of 2023, highlighting the difficulties faced by fund managers [1] - The expectation of significant returns from interest rate declines has become unrealistic, prompting fund managers to adopt timing strategies for trading [1][2] Trading Strategies - Investment teams are focusing on improving trading success rates by developing comprehensive investment frameworks that consider various economic and market factors [2] - Quantitative strategies are increasingly being utilized to assist in trading decisions, with teams monitoring market bond durations to optimize investment accounts [2] - A shift towards scenario analysis and market expectation dynamics is being adopted to better navigate the uncertain bond market [2][3] Future Outlook - The bond market is expected to remain in a narrow fluctuation pattern due to ongoing uncertainties and the need for further policy adjustments [3][4] - The central bank's stance on interest rate curves is identified as a crucial factor influencing the bond market, necessitating close monitoring and timely strategy adjustments [4] - The investment approach is evolving from precise predictions to trend tracking and embracing limited rationality, recognizing the limitations of trading models [4]