Core Viewpoint - The recent announcement by the Ministry of Finance and the State Taxation Administration to reinstate VAT on interest income from newly issued government bonds, local government bonds, and financial bonds starting from August 8 marks a significant shift in the bond market's tax regime, leading to potential structural adjustments in investor behavior and pricing logic [2][3][4]. Group 1: Tax Policy Changes - The new policy reinstates VAT on interest income for bonds issued after August 8, while maintaining tax exemption for bonds issued before this date until maturity, adhering to the principle of "incremental taxation, unchanged stock" [3][6]. - This adjustment aims to clarify market expectations and facilitate a smooth transition, indicating a pivotal change in the bond market's tax system [3][4]. Group 2: Market Impact - Short-term, the bond market is expected to see a shift in trading logic, with a focus on older bonds ("old bonds are king") as their attractiveness increases due to the absence of VAT [6][7]. - The yield spread between new taxable bonds and existing tax-exempt bonds is anticipated to widen, as new bonds will need to offer higher coupons to attract investors [6][7]. Group 3: Institutional Investor Reactions - The tax reform is expected to have a more pronounced impact on banks and insurance companies, which will face increased tax burdens, while public funds and other asset management products may benefit from lower tax rates [8][9]. - The disparity in tax treatment is likely to lead banks to shift more bond allocations to external management, particularly through public funds, to optimize tax efficiency [8][9].