Report Investment Rating The provided content does not mention the industry investment rating. Core Viewpoints - The core issue in the bond market lies in demand rather than supply. In early 2026, the bond market continued to adjust. Although there was a high - volume supply of government bonds and a lengthening trend in local bond issuance terms, the rapid post - New Year loosening of the capital market and the "bear - steep" adjustment of the curve indicated that supply was not the core contradiction. Also, the insurance sector's adjustment of its local bond allocation term structure offset the impact of the change in local bond issuance terms [6][13]. - The root cause is the active contraction of bond investment by institutions. Since 2025, banks have been actively reducing bond investment, similar to the situation in 2016 - 2017, but the current reason is the low interest rate, which makes the return unable to cover the cost. Fund and fixed - income asset management products have been continuously redeemed, leading to large - scale bond sales [6][23]. - To solve the demand - side problem, three aspects can be considered: reigniting the market's expectation of a significant interest rate decline, the central bank taking further steps in directly purchasing long - term bonds, and increasing the necessity of strongly stimulating the economy to promote banks' rapid re - expansion of their balance sheets and spill - over into bond investment [6]. - In the short term, the overall demand problem in the bond market is difficult to solve. It is advisable to focus on structural demand changes, especially in wealth management products. Wealth management products may gradually shift to slightly longer - duration products for returns. Attention can be paid to the riding value of 2 - 3Y urban investment bonds, 1 - 2Y industrial bonds, and appropriate credit picking of high - quality urban and rural commercial banks for sub - perpetual bonds within 3Y, and trading opportunities for 3 - 4Y sub - perpetual bonds [6][27]. Summary by Directory 1. Bond Market Weekly Viewpoint - Some believe the bond market adjustment in 2026 is due to supply expansion, with the first - week government bond net issuance reaching a new high and a lengthening trend in local bond issuance terms [6][10]. - However, the core problem is on the demand side. The post - New Year capital loosening and "bear - steep" curve adjustment show that supply is not the core contradiction. Also, the insurance sector's adjustment of its local bond allocation term structure has kept the spread between local and national bonds stable [13][15]. - Institutions are actively reducing bond investment. Since 2025, banks' bond investment contraction is similar to that in 2016 - 2017, but currently due to low interest rates. Fund and fixed - income asset management products are being redeemed, leading to bond sales [23]. - To solve the demand - side problem, consider reigniting interest rate decline expectations, central bank action on long - bond purchases, and economic stimulus [23]. - In the short term, focus on wealth management products. They may shift to longer - duration products for returns, and attention can be paid to specific bond types [27]. 2. This Week's Focus in the Fixed - Income Market - **Release of December Financial Data**: This week, China will release December financial data, and the US will release December CPI and other data [30]. - **Interest - Rate Bond Issuance**: The expected issuance volume of interest - rate bonds this week is around 427.2 billion yuan, including 207 billion yuan of national bonds, 70.2 billion yuan of local bonds, and about 150 billion yuan of policy - bank financial bonds, which is at a medium level compared to the same period in previous years [30][31]. 3. Review and Outlook of Interest - Rate Bonds - **Reverse Repurchase Net Withdrawal**: Last week, the central bank's open - market operations had a net withdrawal of 165.5 billion yuan. After the New Year, the reverse repurchase maturity volume was high, and the capital market had a seasonal volume increase and price increase, with the increase in price being controllable [34][35]. - **Interest - Rate Adjustment at the Beginning of the Year**: The new fund fee regulations before New Year's Day were beneficial to bond - fund liabilities, but the market quickly took profits after the interest - rate decline. Concerns about government bond supply and the strong start of the equity market suppressed bond - market sentiment. Finally, the yields of most interest - rate bonds increased, with only the 1 - year national bond yield falling by 4.9bp, and the 3 - year national bond yield rising the most, by about 7.8bp [49]. 4. High - Frequency Data - **Production Side**: There was a divergence in operating rates. The blast - furnace and PTA operating rates increased, while the semi - steel tire and asphalt operating rates decreased. In late December, the daily average crude - steel output had a wider year - on - year decline of 14.8% [52]. - **Demand Side**: The year - on - year growth of passenger - car wholesale and retail sales improved rapidly. In the week of December 31, the year - on - year growth of passenger - car wholesale and retail sales were 45% and 17% respectively. The year - on - year decline in the commercial - housing transaction area narrowed. In the week of January 4, the land premium rate of 100 large - and medium - sized cities decreased, and the land transaction area had a seasonal decline and a large year - on - year decline. The commercial - housing sales area of 30 large - and medium - sized cities decreased to 2.75 million square meters, with a narrowed year - on - year decline of 9%. The SCFI and CCFI composite indices changed by - 0.5% and 4.2% respectively [52]. - **Price Side**: Crude - oil prices recovered, copper and aluminum prices increased, coal prices diverged, the mid - stream building - material composite price index increased slightly, and downstream vegetable and fruit prices decreased while pork prices increased. The rebar inventory decreased to a low level of 283 tons, and the futures price increased by 0.6% [53].

1. Report Industry Investment Rating No information provided in the content. 2. Core Viewpoints of the Report - In October 2025, the year - on - year growth rate of bond custody balance was 14.0%, 0.1 percentage points lower than that in September. The newly - added custody scale was 1.5 trillion yuan, basically the same as the same period last year. The main contributor to the year - on - year increase was inter - bank certificates of deposit, while interest - rate bonds had a negative contribution. Credit bonds also increased significantly year - on - year [3][4]. - In terms of institutions, the bond - allocation power of allocation - type institutions declined, while non - legal person products significantly increased their bond allocation. Banks, insurance and other institutions decreased their bond allocation, especially banks, while non - legal person products and securities firms increased their bond allocation [3]. - Looking ahead, it is expected that the supply of government bonds from November to December will remain at a high level, but the year - on - year growth is expected to decline. The demand in the bond market at the end of the year still has support [3]. 3. Summary by Relevant Catalogs 3.1 Overall Bond Custody in October - The year - on - year growth rate of bond custody balance was 14.0%, 0.1 percentage points lower than that in September. The newly - added custody scale was 1.5 trillion yuan, basically the same as the same period last year [3][4]. 3.2 By Bond Type - Inter - bank certificates of deposit were the main contributor to the year - on - year increase in October, followed by credit bonds. Interest - rate bonds (treasury bonds + local government bonds + policy - based financial bonds) significantly decreased year - on - year, followed by financial bonds [3][9]. - The supply scale of government bonds and policy - based financial bonds decreased in October. The supply of government bonds continued to decline, with treasury bonds decreasing by about 150 billion yuan and local government bonds decreasing by about 410 billion yuan year - on - year. Policy - based financial bonds were at a low level, and financial bond financing also continued at a low level [19]. - Credit bonds increased by nearly 190 billion yuan year - on - year in October, further expanding significantly. This was due to the repair of the corporate balance sheet, the decline in corporate financing costs, and the new policy on science - innovation bonds [20]. - Inter - bank certificates of deposit financing expanded significantly in October. The central bank restarted bond - buying operations, and banks may have increased the supply of inter - bank certificates of deposit to meet credit demand [23]. 3.3 By Institution - **Banks**: Affected by the supply, after considering the net investment of 400 billion yuan in the central bank's outright reverse repurchase, banks' bond investment decreased by 680.4 billion yuan year - on - year in October. They mainly reduced their allocation of treasury bonds, policy - based financial bonds, financial bonds and credit bonds, and slightly increased their allocation of inter - bank certificates of deposit [30][33]. - **Insurance**: Insurance slightly reduced its bond allocation year - on - year in October but continued to increase its allocation of local government bonds. The proportion of its increased government bond scale to the newly - added government bond custody was about 17.5%, significantly higher than the 9.6% in the past 12 months [36]. - **Non - legal person products**: They increased their bond holding by 1.03 trillion yuan in October, with a year - on - year increase of 978.2 billion yuan. They mainly increased their allocation of inter - bank certificates of deposit, followed by credit bonds [37]. - **Foreign capital**: Foreign capital continued to reduce its bond holding in October, mainly increasing its holding of treasury bonds and reducing its holding of inter - bank certificates of deposit. The cost - performance of carry trade income was still insufficient [48]. - **Securities firms**: Securities firms increased their bond holding by 156.1 billion yuan in October, with a year - on - year increase of 131 billion yuan, mainly increasing their holding of treasury bonds and local government bonds [48]. 3.4 Outlook - **Supply**: It is expected that the supply of government bonds from November to December will remain at a high level, with a monthly supply scale exceeding 1 trillion yuan, but the year - on - year growth is expected to decline due to the high base in the same period last year [50]. - **Demand**: - **Banks**: It is expected that from November to December, banks will follow the supply, with a relatively large bond - allocation scale but a year - on - year decrease. The allocation scale is expected to be between 1 and 1.5 trillion yuan [54]. - **Insurance**: Insurance institutions may have a certain willingness to scramble for bond allocation at the end of the year. If the government bond supply from November to December is 2.3 trillion yuan, the insurance allocation scale may exceed 40 billion yuan [58]. - **Asset management accounts**: It is expected that from November to December, asset management accounts will maintain a certain intensity of bond allocation, but it may be lower than that in October when they undertook a large number of inter - bank certificates of deposit [63].

Core Viewpoint - The optimism surrounding the potential end of the longest government shutdown in U.S. history is driving market sentiment, with upcoming Treasury bond auctions expected to be a key indicator for stock market performance [1][2]. Group 1: Market Reactions - On Monday, U.S. stock markets rebounded significantly, with the Dow Jones Industrial Average rising over 380 points to approximately 47,369 points, the S&P 500 increasing by 1.54%, and the Nasdaq Composite leading with a 2.27% gain [1]. - The strong demand in the $58 billion three-year Treasury bond auction is viewed as a positive signal, enhancing expectations for the upcoming $42 billion ten-year and $25 billion thirty-year bond auctions [1]. Group 2: Economic Outlook - LPL Financial's Chief Fixed Income Strategist, Lawrence Gillum, suggests that if the government shutdown ends, the U.S. economy could shift from a "worst-case scenario" to a "relative normalization" phase, despite ongoing inflation pressures and growth slowdowns [2]. - The backlog of economic data due to the shutdown is expected to be released gradually, rather than all at once, which may impact market perceptions of economic strength [2]. Group 3: Bond Market Dynamics - Analysts indicate that the upcoming bond auctions will serve as critical indicators of market demand, with expectations for a "relatively good" overall response [1]. - Concerns arise that weak demand in the bond auctions could lead to higher long-term interest rates, negatively affecting stock market performance [2]. - The bond market is currently in a "delicate moment," with the absence of economic data leading to increased uncertainty among investors regarding economic strength [2].