Economic Review and 2026 Outlook - In 2025, the actual GDP growth rates for Q1 to Q4 were 5.4%, 5.2%, 4.8%, and 4.5%, while nominal GDP growth rates were 4.6%, 3.9%, 3.7%, and 3.9% respectively, indicating a downward trend in actual GDP growth throughout the year [4][10] - Fixed asset investment (excluding rural households) decreased by 3.8%, the lowest since 2010, while retail sales of consumer goods grew by 3.7%, and export growth (in RMB terms) was 6.1% [4][19] - The economic state in 2025 was characterized by strong supply but weak demand, with resilient production and exports, but persistent weakness in domestic demand [4][19] 2026 Policy and Institutional Behavior Outlook - A moderately loose monetary policy is expected, with a forecasted policy interest rate cut of 10-20 basis points, and a potential reserve requirement ratio (RRR) cut of 50-100 basis points [4][62][66] - The net financing scale of government bonds in 2026 is projected to be around 13.8 trillion yuan, remaining stable compared to the previous year [4][76] - The influence of trading desks on the bond market is anticipated to weaken, while the pricing power of banks and insurance funds is expected to increase due to lower funding costs [4][62][79] Investment Recommendations - The bond market in 2026 is expected to perform better than anticipated, with a projected net issuance of around 20 trillion yuan and significant demand from banks and insurance funds [4][58] - The 10-year government bond yield is expected to fluctuate between 1.6% and 1.9%, while the 30-year government bond yield is projected to be between 1.9% and 2.4% [4][58] - Investors are advised to focus on opportunities in long-term bonds and to monitor oil price fluctuations and changes in risk appetite [4][58]

1. Report Industry Investment Rating - Not provided in the given content 2. Core Viewpoints of the Report - The economic data at the beginning of 2026 improved, but the overall situation remained weak. The year-on-year growth rate of social retail sales from January to February was +2.8%, up 1.9 percentage points from December 2025 but down 0.89 percentage points from the whole year of 2025. The cumulative year-on-year growth rate of fixed asset investment was +1.8%, up 5.6 percentage points from the whole year of 2025. The year-on-year decline of real estate development investment narrowed but remained in a large negative growth range, and real estate sales accelerated their decline, which might suppress post-cycle consumption such as furniture and home appliances. The year-on-year growth rate of industrial added value above designated size was +6.3%, 1.1 percentage points faster than that in December 2025. Under the interweaving of internal and external factors, market expectations were frequently disturbed, and residents' consumption willingness and enterprises' investment confidence still needed to be restored. The supply pressure of the bond market was better than expected, and there might be certain pressure on economic growth. The risk of long-term bonds was low, and the yield was expected to decline. It was recommended to pay attention to the investment opportunities of long-duration bonds [2]. 3. Summary According to Relevant Catalogs Social Retail Sales - The growth rate of social retail sales rebounded but remained under pressure. From January to February, the year-on-year growth rate of social retail sales was +2.8%, 1.9 percentage points faster than that in December 2025, which might be affected by the Spring Festival holiday. The cumulative growth rate from January to February decreased by 0.89 percentage points compared with the whole year of 2025. The retail sales of grain, oil, food, and clothing, shoes, hats, and textiles above the quota increased by 10.2% and 10.4% respectively. The retail sales of communication equipment and household appliances and audio-visual equipment above the quota increased by 17.8% and 3.3% respectively. In the future, due to the high year-on-year growth rate of social retail sales in the first half of 2025 and the decline in the support of consumption policies in 2026, the year-on-year growth rate of social retail sales in the first half of 2026 might be under pressure [2]. Fixed Asset Investment - Fixed asset investment turned from decline to growth, with infrastructure leading the recovery and real estate still under pressure. The pressure of fixed asset investment was alleviated stage by stage. The cumulative year-on-year growth rate ended four consecutive months of negative growth and turned from decline to growth from January to February. The year-on-year decline of real estate development investment narrowed but remained in a deep negative growth range. From January to February, the year-on-year growth rate of fixed asset investment was +1.8%, up 5.6 percentage points from the whole year of 2025, mainly driven by strong infrastructure investment (contributing about 3 percentage points) and accelerated growth of manufacturing investment (pulling 0.8 percentage points), while the drag effect of real estate investment weakened [2]. Real Estate - Real estate sales accelerated their decline, and the decline of private investment narrowed but remained under pressure. From January to February, the sales area of new commercial housing was 92.93 million square meters, a year-on-year decrease of 13.5%, and the sales volume was 818.6 billion yuan, a year-on-year decrease of 20.2%. The sales area and volume of residential housing decreased by 15.9% and 21.8% respectively, which might suppress post-cycle consumption such as furniture and home appliances. The "sales - investment" negative feedback mechanism of real estate might still continue. At the end of February, the unsold area of commercial housing was 799.98 million square meters, a year-on-year increase of 0.1%, indicating potential inventory pressure. From January to February, private fixed asset investment decreased by 2.6% year-on-year, 3.8 percentage points narrower than that in the whole year of 2025, ending the trend of expanding negative growth for six consecutive months but still not turning positive [2]. Industrial Added Value - The growth rate of industrial added value above designated size accelerated, and the leading role of new kinetic energy increased. From January to February, the year-on-year growth rate of industrial added value above designated size was +6.3%, reaching a recent high, 1.1 percentage points faster than that in December 2025. The industrial production accelerated significantly and continued to recover. Among the three major categories, the mining industry, manufacturing industry, and production and supply of electricity, heat, gas, and water increased by 6.1%, 6.6%, and 4.7% respectively year-on-year, 0.7, 0.9, and 3.9 percentage points higher than that in December 2025. The added value of high-tech manufacturing and equipment manufacturing above designated size increased by 13.1% and 9.3% respectively year-on-year, faster than the overall industrial added value above designated size. With the gradual improvement of demand and the continuous release of policy effects, the industrial economy was expected to maintain a stable growth trend [2][3]. Economic Growth - Economic growth might still face certain pressure. In January - February 2026, China's foreign trade achieved a "good start", but domestic demand remained under pressure. The support of consumption policies declined, the growth rate of social retail sales rebounded but was overall weak, real estate sales accelerated their decline, and private investment remained in the negative growth range, which might restrict economic recovery. The geopolitical conflict in the Middle East pushed up international oil prices, the market lowered the expectation of the Fed's interest rate cut, and overseas trade frictions disturbed, so the resilience of future foreign trade growth needed to be observed. In terms of prices, in February 2026, the year-on-year increase of CPI rose significantly to 1.3% (a three - year high), and the year-on-year decline of PPI narrowed to -0.9%, with five consecutive months of positive month-on-month growth. The war between the US and Iran might further narrow the decline [3]. Bond Investment - The adjustment of long-term bonds might be an opportunity, and it was recommended to seize the band operation opportunities. Recently, the RMB appreciated significantly, which was beneficial to the Chinese bond market. Currently, the long-term bond positions of trading desks were still small, and the year-on-year recovery of PPI was a general market expectation, so the risk of long-term bonds might be low. The deposit interest rate was low, and insurance premiums were expected to grow rapidly. In March, the allocation of ultra-long bonds by insurance funds might increase, and the yield of the active 30Y Treasury bond was expected to fall below 2.20%. It was expected that the low point of the 10Y Treasury bond yield in the first quarter might reach 1.75%, and the low point in the second quarter was expected to reach 1.70%. It was expected that the 10-year Treasury bond yield in 2026 would fluctuate in the range of 1.6% - 1.9%. Currently, it was recommended to pay attention to the opportunities of old 30Y Treasury bonds, 10Y China Development Bank bonds, and long-duration sinking capital bonds [3].

Core Viewpoint - The government work report for 2026 sets a GDP growth target of 4.5% to 5%, reflecting a commitment to high-quality development and a proactive policy stance [2]. Group 1: Economic Growth and Policy - The report indicates a shift from short-term stimulus to long-term support for the bond market, with a stable macro environment expected to benefit bond fundamentals [2]. - The fiscal deficit is maintained at a high level of 4%, with all incremental deficits borne by the central government, indicating a strategy of central leverage and reduced pressure on local governments [2]. - Fund managers believe that the supply pressure of government bonds is expected to decrease this year, leading to an improvement in the bond supply-demand relationship [2]. Group 2: Monetary and Fiscal Policy Coordination - The deep coordination between monetary and fiscal policies is a focal point, with expectations of a downward adjustment in overall economic growth targets [3]. - Despite limited room for further monetary easing, the monetary policy will continue to support liquidity, benefiting bond market performance [3]. - The current interest rate levels are seen as appropriate, with a stable liquidity outlook supporting a positive medium-term trend for the bond market [3]. Group 3: Market Sentiment and Investment Strategy - Some fund companies express caution, noting that the bond market faces headwinds due to already priced-in easing expectations and historically low yield spreads [4]. - The report does not signal unexpected easing, but the fundamental support for the bond market remains intact, with fiscal policies aimed at promoting domestic demand [4]. - The strategy of increasing bond allocations during market adjustments is considered relatively advantageous in the current environment [4].

Core Viewpoint - The Loan Prime Rate (LPR) has remained unchanged for nine consecutive months, with expectations for a comprehensive policy interest rate cut in the second quarter of 2026, which may lead to lower loan rates for businesses and residents, thereby stimulating consumption and investment [1] Monetary Policy - The People's Bank of China (PBOC) announced that the 1-year LPR is 3.0% and the 5-year LPR is 3.5%, remaining stable since the last reduction in May 2025 [1] - On February 24, the PBOC conducted a reverse repurchase operation of 526 billion yuan with a fixed rate of 1.40%, maintaining liquidity in the banking system [3] - The PBOC plans to conduct a 600 billion yuan Medium-term Lending Facility (MLF) operation on February 25 to ensure ample liquidity in the banking system [3] Regional Developments - The government of Luoyang aims to deepen reforms in key areas, including state-owned enterprise reform, with plans to reduce the number of legal entities by over 8% and increase asset scale beyond 110 billion yuan [4] - In Hunan, the government plans to exit 304 financing platforms by 2025, significantly optimizing the debt structure [5] - Xi'an is focusing on strategic restructuring and professional integration of state-owned enterprises, aiming to enhance core functions and competitiveness [7] - Inner Mongolia plans to issue 573 billion yuan in special refinancing bonds to replace existing hidden debts [8] Corporate Financing - Jiaozuo City Development Investment Group is set to issue 1.41 billion yuan in corporate bonds [9] - Xinxiang New融 Asset Operation Company plans to issue 1.5 billion yuan in corporate bonds, with a credit rating of AA+ [10] - Zhengzhou City Development Group intends to issue 3.7 billion yuan in corporate bonds [11] Market Sentiment - Following the holiday, the bond market is expected to face short-term pressure on liquidity, but many institutions remain optimistic about buying opportunities during fluctuations [13] - Analysts suggest that the macro environment still supports the bond market, with potential for lower yields as the market approaches the two sessions [14]

Group 1 - The bond market is expected to show a strong fluctuation, with significant capital inflow into the bond market, as evidenced by a net inflow of over 460 million yuan into the 10-year government bond ETF (511260) in the past five days [1] - Financial Street Securities indicates a strong market expectation for interest rate cuts after the holiday, with signs of weak economic recovery and relatively ample liquidity supporting early demand growth [1] - If the interest rate cut expectations are realized before the "Two Sessions," the yield on 10-year government bonds may potentially drop below 1.8%, suggesting a generally positive outlook for the bond market [1] Group 2 - The 10-year government bond ETF (511260) tracks the Shanghai Stock Exchange 10-year government bond index, selecting bonds with a remaining maturity of 7 to 10 years listed on the exchange, maintaining a constant duration [1] - Since its inception, the 10-year government bond ETF has consistently achieved new net asset value highs, with historical performance remaining robust; as of the end of Q3 2025, the one-year return rate is 4.17%, three-year return rate is 14.04%, five-year return rate is 23.39%, and cumulative return since inception is 35.77% [1] - The ETF has maintained positive annual returns over seven complete calendar years from 2018 to 2024, positioning it as a potential asset allocation tool that can navigate through bull and bear cycles [1]

Fixed Income - Long-term bond yields are expected to decline by 5-10 basis points, with the 10Y and 30Y government bond yields having decreased nearly 10 basis points since January 7, 2026 [2][7] - As of February 6, 2026, brokers and funds have net sold over 108.6 billion yuan in ultra-long-term bonds (remaining maturity over 20 years), while insurance funds have net bought 120.6 billion yuan, indicating a shift in investment strategy [2][7] - The current steep yield curve suggests that banks may increase their allocation to government bonds as their funding costs decrease, with expectations for the 10Y government bond yield to fluctuate between 1.6% and 1.9% in 2026 [2][7] Transportation - Korean shipping company Sinokor plans to sell all its container ships to Mediterranean Shipping Company for approximately 2.5 to 3 billion USD and focus on Very Large Crude Carriers (VLCC), which may reshape oil shipping pricing logic [19][20] - The VLCC market is sensitive to supply-side changes, with a significant portion of the fleet expected to reach 20 years of age starting in 2026, potentially leading to a supply shortage and upward pressure on freight rates [21][22] Home Appliances - The real estate market is showing signs of stabilization, which may lead to a recovery in valuations for home appliance companies, particularly in the white goods sector [23][24] - Recent data indicates that the inventory of commercial housing is gradually decreasing, and the transaction volume of second-hand homes in major cities is increasing, suggesting a potential easing of pressure on domestic demand [23][24] Metals and New Materials - Copper prices are expected to experience short-term fluctuations due to inventory accumulation, with recent data showing a rise in copper stocks across various markets [27][28] - The aluminum market is also facing similar trends, with prices expected to fluctuate as inventory levels rise, while demand remains stable [29] - The supply of tungsten and rare earth elements is tightening, leading to sustained high prices for these materials [5] New Consumption - Huangshan Tourism plans to invest 530 million yuan in a hotel project to enhance its tourism offerings, which aligns with the growing visitor numbers to the Huangshan scenic area [33] - In January 2025, Tmall's beauty sales grew by 24% year-on-year, indicating a stable competitive landscape in the beauty sector [33]

1. Report Industry Investment Rating - Not provided in the given content 2. Core Views of the Report - Since the beginning of the year, banks have a strong motivation to increase their bond holdings, while trading desks are relatively cautious. Brokers are waiting for the right - side opportunity, funds are seeking certainty, and insurance companies' pure - bond purchases are generally in line with seasonality. The behavior of other institutions and insurance companies reflects the continued rapid growth of wealth management scale. Looking forward, the kinetic energy of trading desks is gradually recovering. Brokers are increasing their purchases of 3 - 10y treasury bonds, but the momentum for buying ultra - long treasury bonds is still not strong. Funds' recovery is relatively obvious, but they still prefer the coupon - earning approach. Bank allocation may remain relatively strong, so a bullish mindset can be maintained in the bond market, and a more optimistic view can be taken on credit in the short term [2] 3. Summary According to Relevant Catalogs 3.1 Bank Super - Seasonal Allocation - **Source of Bank's Year - Beginning Allocation**: The strong net buying by banks at the beginning of the year is due to several reasons. Firstly, credit issuance at the beginning of the year is generally weak, and banks lack assets. In 2025, commercial banks' deposits remained high, but loan demand was relatively weak, with the deposit - loan gap significantly higher than the seasonal level since the second half of 2025. The bill rate at the beginning of 2026 was low and the rebound slope was lower than the seasonal level, indicating weak loan demand. Secondly, banks are shifting from outsourced investment to self - managed allocation. At the end of the year, some bank funds participated in fund inflow - boosting, and at the beginning of the year, the funds were recovered and allocated through self - management. Also, since 2025, the two - way fluctuations in the bond market have increased, and bond fund returns have been poor. Thirdly, the relaxation of regulatory restrictions on indicators such as EVE may provide space for bond allocation [11][12] - **Large Banks**: Large banks' purchases of treasury bonds over 3y are super - seasonal, with significant increases in 7 - 10y and over 30y bonds. They have a higher preference for old treasury bonds over 7y. They are actively allocating and prefer medium - to long - term treasury bonds. Due to the tax policy change for new bonds and the tax preference for old bonds, they still actively buy old bonds. They significantly and super - seasonally sell 3 - 5y secondary - tier bonds, mainly for profit - taking and adjusting indicators [15] - **Small and Medium - Sized Banks**: Their behavior is more complex, with super - seasonal purchases of 3 - 7y policy - bank bonds, 3 - 5y and over 20y treasury bonds, and super - seasonal sales of 7 - 10y treasury bonds. The term selection reflects the demand differentiation between trading and allocation accounts. Allocation accounts value ultra - long - term coupons, while OCI and TPL accounts face duration restrictions. They choose 3 - 7y policy - bank bonds and 3 - 5y treasury bonds because of the relatively high spread between 3Y and 7Y CDB bonds and treasury bonds at the end of 2025, and the relatively low 5Y spread [18] 3.2 Dividend - Insurance Has Little Impact, Insurance Seeks Coupons at the Beginning of the Year - **Limited Impact of Dividend - Insurance's Good Start on Insurance Capital Behavior**: Insurance's bond - allocation rhythm is affected by the liability side, and premium income often has a seasonal "good - start" feature. The market was concerned that the good start of dividend - insurance might lead to a decline in the duration of insurance's bond allocation, but actual trading data shows no significant super - seasonality. This may be because the proportion of new - contract premiums in the total premium inflow is not high [21] - **Selling Ultra - Long Treasury Bonds Is a Seasonal Behavior and May End Temporarily**: Insurance's net selling of ultra - long treasury bonds at the beginning of the year is not super - seasonal. This is related to the data caliber as the insurance data in secondary trading includes insurance asset management, whose behavior is similar to that of public funds. Also, at the beginning of the year, insurance focuses on coupon - earning and prefers ultra - long local bonds [23] - **Insurance's Increase in Ultra - Long Credit Bonds Is Just Seasonal and Reflects the Coupon - Earning Approach**: The market was concerned about insurance's large - scale purchase of over 5y secondary - tier bonds, which pushed down long - term secondary - tier bond yields. However, this behavior is not super - seasonal and reflects the coupon - earning approach. Insurance accounts' liability side is generally stable, which is conducive to buying over 5y credit bonds [25] - **Insurance's Super - Seasonal Purchase of CDs Is Related to Money - like Accounts and Wealth - Management Behavior**: Insurance's significant super - seasonal increase in CD holdings at the beginning of this year is due to the abundant wealth - management funds at the beginning of the year, which are outsourced to money - like special accounts. It also reflects the assessment behavior of large - scale wealth - management to support the real economy, with CDs converted to deposits at the end of the year and reversed at the beginning of the year [27] 3.3 Band - Trading, Selling Bonds at the Beginning of the Year - Brokers super - seasonally sell treasury bonds over 3y and super - seasonally buy 1 - 3y treasury bonds and 5 - 7y policy - bank bonds. They maintain a trading mindset and wait for the right - side opportunity to go long. Due to the good performance of the stock market at the beginning of the year and the expected spring rally, the bond market is less attractive to brokers. They also maintain a volatile mindset and mainly conduct band - trading in the bond market, selling during the adjustment at the beginning of the year and being positive about 1 - 3y treasury bonds and 5 - 7y policy - bank bonds. In the future, brokers' net purchases of 3 - 10y treasury bonds will recover to some extent, but the purchase of ultra - long treasury bonds needs further recovery [29][30] 3.4 Funds Seek Certainty, and Duration Kinetic Energy Is Gradually Recovering - Funds super - seasonally sell old treasury bonds over 10y and treasury bonds over 20y at the beginning of the year and super - seasonally buy credit bonds within 5y, including 3 - 5y secondary - tier bonds. Multiple factors lead to fluctuations in funds' liability side at the beginning of the year, such as the withdrawal of year - end inflow - boosting funds and the weakening of institutional confidence in bond funds. Funds seek certainty and their preference for long - duration bonds has declined. They are gradually recovering, with the coupon - earning approach prevailing and mainly buying short - term credit bonds while moderately increasing duration. Since mid - January, the selling pressure on long - term interest rates by funds has eased, and the duration kinetic energy is gradually being repaired [33] 3.5 Other Institutions' Behavior Reflects the Continuous Growth of Wealth - Management Scale - Other institutions' behavior is similar to that of insurance institutions. They super - seasonally buy CDs and 1 - 3y policy - bank bonds, and their purchases of other bond types are in line with seasonality. The significant super - seasonal purchase of CDs and the strong purchase of short - term policy - bank bonds may reflect the increase in outsourced investment demand driven by the growth of wealth - management scale [37]

Core Viewpoint - The beginning of 2026 presents challenges for conservative investors, with a strong A-share market and weak performance in bond funds and wealth management products, leading to increased volatility risks [1][2] Summary of 2025 Bond Market Performance - The bond market in 2025 saw a historical low annual yield of 0.83%, attributed to a divergence between expectations and reality, as well as changes in market structure [1][2] - The rapid rise in bond prices at the end of 2024 was driven by a shift in funds from the stock market due to risk aversion and expectations of significant monetary easing in 2025, which did not materialize as anticipated [2][3] Key Factors Influencing the 2026 Bond Market - The influence of stock market performance on bond funds remains, but the intensity may become more rational, with a potential easing of supply pressure in the bond market [3][4] - The structural changes in traditional investment forces, such as banks and insurance companies, continue to pose challenges for the bond market in 2026 [4][5] Structural Opportunities in the 2026 Bond Market - Despite pressures, there are positive factors, such as the significant amount of maturing deposits expected in early 2026, which may lead to a shift towards stable investment products like bonds [6][7] - The anticipated inflow of funds into wealth management and "fixed income+" products could create structural opportunities for short-term credit bonds and long-term local government bonds [7][8] Investment Strategy for 2026 - The bond market is expected to have limited risk of significant declines, supported by a combination of fiscal and monetary policies aimed at easing pressure on debt servicing [8] - The potential for a significant rise in long-term bonds is limited, while short-term credit bonds may become a focal point for investment as maturing deposits are reallocated [8][9]

Group 1: Macroeconomic Insights - The economic structure is shifting towards improvement, with expectations for a strong start in Q1 2026 due to preemptive investment policies, strong export and infrastructure indicators, and early disbursement of funds for "trade-in" programs [1] - Economic data is anticipated to rebound, contributing to a positive economic outlook for the beginning of 2026 [1] Group 2: Bond Market Analysis - As of the end of December 2025, the total bond custody amount reached 178.55 trillion yuan, with a net increase of 0.30 trillion yuan, although this was a decrease compared to the previous month [2] - The bond market shows a trend where commercial banks are increasing their holdings in interest rate bonds, while credit cooperatives are reducing their positions [2] - The economic characteristics of 2025 indicate a "high before low" pattern, with supply outpacing demand and external demand stronger than internal demand [3] - In December 2025, industrial production growth rates increased year-on-year and month-on-month, while fixed asset investment saw a larger decline [3] - The current liquidity in the bond market is relatively loose, and investors are becoming increasingly optimistic, with expectations for the 10Y government bond yield to stabilize around 1.75% in 2026 [3] Group 3: Real Estate Market Trends - As of January 18, 2026, the cumulative transaction volume for new homes in 20 cities was 23,000 units, reflecting a year-on-year decrease of 45.3% [4] - In major cities, Beijing saw 1,398 units sold (-25%), Shanghai 3,534 units (-35%), and Shenzhen 765 units (-75%) [4] - The second-hand housing market also experienced a decline, with a total of 44,000 units sold across 10 cities, down 17.8% year-on-year [4] - In Beijing, 7,033 second-hand homes were sold (-23%), in Shanghai 12,849 units (-8%), and in Shenzhen 2,844 units (-25%) [4]

Core Viewpoint - The economic data for Q4 2025 indicates a significant "high first, low later" trend, with supply outpacing demand and external demand stronger than internal demand [4][5]. Economic Data Summary - In Q4 2025, the GDP grew by 4.5% year-on-year, aligning with market expectations, while the annual growth rate for 2025 was 5% [4][5]. - The industrial added value for December 2025 increased by 5.2% year-on-year, up from 4.8% in November [4][5]. - Fixed asset investment for the entire year of 2025 saw a cumulative year-on-year decline of 3.8%, worsening from a previous decline of 2.6% [4][6]. - Retail sales of consumer goods in December 2025 grew by 0.9% year-on-year, down from 1.3% in November, marking a continuous decline over seven months [4][6]. Investment Market Insights - In the bond market, from August 2025 to the present, government bond yields have shown a clear divergence, with short-term yields stable and declining, while long-term yields, especially the 30-year yield, are on an upward trend [7]. - The current loose liquidity and diverging fundamentals suggest a gradually optimistic outlook for the bond market, with the 10-year government bond yield expected to stabilize around 1.75% in 2026 [7]. - In the convertible bond market, as of January 16, 2026, the China Securities Convertible Bond Index has risen by 5.6%, mirroring the 5.5% increase in the overall index, indicating a strong demand for convertible bonds amid a bullish equity market [7].