Core Viewpoint - The announcement of the restoration of value-added tax (VAT) on interest income from newly issued government bonds, local government bonds, and financial bonds starting from August 8, 2025, has caused significant market reactions, leading to a surge in demand for existing bonds that remain exempt from this tax [1][2]. Group 1: Market Reactions - The new tax policy is expected to create a "buy old bonds" trend, as investors prefer existing bonds that are exempt from the new tax [2][5]. - Following the announcement, the yield on 10-year government bonds initially rose but then fell, indicating a preference for holding existing tax-exempt bonds [2][5]. - The yield on 10-year and 30-year government bonds decreased by 1 basis point, with current yields reported at 1.6975% and 1.919% respectively [2][5]. Group 2: Impact on Investment Strategies - The new tax policy is anticipated to enhance the predictability of the bond market, potentially leading to a shift in investment towards credit bonds and public funds that are not affected by the new tax [2][3][4]. - Institutions believe that the new regulations may lead to a widening yield spread between new and old bonds, with estimates suggesting a 5 to 10 basis point difference [2][3]. - Public funds are expected to benefit from the tax advantages compared to self-managed accounts, as they remain exempt from both income tax and VAT [3][4]. Group 3: Long-term Implications - The restoration of VAT is seen as a move to guide funds from the interest rate market to the stock and credit markets, aligning with broader economic goals [5][6]. - The policy aims to reduce the distortions in the yield curve and interest rate risks that have accumulated due to the previous tax exemptions [6][7]. - The estimated tax revenue from the restoration of VAT is projected to be approximately 4 billion RMB in 2025 and 25 billion RMB in 2026, although this is considered limited compared to the overall tax revenue [6][7].

Core Insights - The new tax regulation on interest income from newly issued government bonds, effective from August 8, 2025, has triggered a surge in demand for existing bonds, leading to a strong performance in both the stock and bond markets [1][5] - The policy is expected to have a limited short-term impact on the overall bond market direction, with institutions believing that it will not alter the long-term trends [5][6] Group 1: Market Reactions - The announcement of the tax on new bond issuances led to a "rush for old bonds," with institutions favoring existing tax-exempt bonds [2][5] - Following the policy announcement, the yield on 10-year government bonds initially rose but then fell, indicating a preference for holding existing bonds [2][5] - The yield on 10-year and 30-year government bonds decreased by 1 basis point, reflecting market adjustments to the new tax expectations [2] Group 2: Investment Opportunities - The new tax regulation is seen as beneficial for credit bonds and money market instruments, with institutions likely to increase allocations to these areas [3][4] - Public funds are expected to benefit from the tax advantages compared to proprietary trading accounts, as public funds remain exempt from the new tax [3][4] - The potential for increased investment in the "southbound bond connect" is noted, as it remains unaffected by the new tax [4] Group 3: Long-term Outlook - Institutions believe that the new tax policy will not significantly alter the long-term trajectory of the bond market, with expectations of a bifurcation between new and old bonds [5][6] - The policy aims to guide funds from the bond market to the stock market and credit markets, aligning with broader economic goals [5][6] - The restoration of the tax is projected to contribute approximately 4 billion RMB to fiscal revenue in 2025 and around 25 billion RMB by 2026, although this is considered limited compared to the overall tax revenue [6][7]

Core Viewpoint - The new tax regulation on interest from newly issued government, local, and financial bonds, effective from August 8, is expected to impact public bond funds and bank wealth management products, indicating a challenging period ahead for bond investments [1][9]. Group 1: Tax Regulation Impact - From August 8, interest on newly issued bonds will be subject to value-added tax (VAT), with financial institutions paying a 6% rate and asset management products like funds and wealth management products paying a 3% rate [2][4]. - The estimated annual VAT revenue from interest on government and financial bonds is projected to be around 14 billion, with future revenues potentially reaching around 100 billion [6]. Group 2: Market Reaction and Future Outlook - The immediate impact on bond yields is minimal, with a calculated effect of approximately 0.06%, which is relatively insignificant in the context of a long-term bear market for bonds [10]. - The current environment of asset scarcity in low-risk fixed income products means that the market is unlikely to react strongly to the new tax, as older bonds remain exempt from taxation [9][10]. - The focus should shift from seeking high returns to ensuring stable returns, especially during a deflationary period where risk-free yields are expected to decline [12][13].