1. Report's Industry Investment Rating - Not provided in the content. 2. Report's Core View - The floating - rate bond market in China is currently small in scale, with policy - bank bonds as the main component. Its relative investment value depends on the trend of the benchmark interest rate. It is recommended to allocate more when the benchmark interest rate is expected to rise and sell when it is expected to fall. Currently, the short - term allocation value of floating - rate bonds is not prominent [5]. 3. Summary by Directory 3.1 China's Floating - Rate Bond Market Situation 3.1.1 Main Features of Floating - Rate Bonds - Floating - rate bonds are favored in the "low - interest + high - volatility" environment due to the increased demand for reducing issuance costs and defensive allocation. They have a coupon reset mechanism to hedge against interest - rate risks and can reduce issuers' costs. Their coupon consists of a "benchmark interest rate + fixed spread", and the benchmark is often linked to market - based rates [11]. - Floating - rate bonds have unique advantages in interest - rate risk management. They can save financing costs for issuers in a low - interest environment and hedge against interest - rate and inflation risks for investors [12]. - The basic elements of floating - rate bonds include face value, term, interest - calculation method, and payment frequency. They differ from fixed - rate bonds in interest composition, return certainty, and interest - rate risk exposure [13]. 3.1.2 Development History of the Floating - Rate Bond Market - The development of China's floating - rate bond market has gone through multiple expansion phases. It started in 1995, experienced a start - up exploration period (1995 - 2000), a diversified expansion period (2003 - 2011), a mature optimization stage (2014 - 2021), and an adjustment and restart period (2022 - present) [15]. - In terms of variety structure, policy - bank bonds dominated in the early stage, and asset - backed securities once became the main driver of market growth. Since 2022, policy - bank bonds have regained the dominant position, and bank - type credit bonds have increased in 2025 [20]. - The benchmark interest - rate system has evolved from being concentrated on the one - year fixed - deposit rate to a more diversified system, including LPR, SHIBOR, and DR series [24]. - The issuance - term structure has changed from long - term in the early stage to a more concentrated 2 - 3 - year structure recently [27]. 3.1.3 Stock Size and Structure - As of February 4, 2026, the stock of floating - rate bonds in China is over 80 billion yuan, accounting for 0.44% of the overall bond market. Compared with the US, there is room for growth. The stock is concentrated in the medium - and short - term, with 2 - 3 - year bonds accounting for 68%. Policy - bank bonds have the highest proportion, followed by other financial bonds and asset - backed securities [30]. - The benchmark interest rates of the stock floating - rate bonds are mainly DR007 and LPR, with DR007 - based repo rates accounting for 54% and LPR series accounting for 35% [31]. 3.1.4 Liquidity of the Floating - Rate Bond Market - The secondary - market liquidity of floating - rate bonds is generally low due to complex pricing and valuation, limited market size, and reduced defensive and trading attractiveness. In January 2026, the trading volume of floating - rate bonds was about 7.89 billion yuan, lower than that of mainstream fixed - rate bonds [37]. - There is significant differentiation in liquidity among different types of floating - rate bonds, with policy - bank floating - rate bonds being the most active. In January 2026, the monthly trading volume of policy - bank bonds reached 7.11 billion yuan [40]. 3.2 Pricing and Valuation of Floating - Rate Bonds 3.2.1 Floating - Rate Bond Valuation Model (ChinaBond) - The price of a floating - rate bond is affected by the benchmark interest rate and the spread yield. The valuation model shows that the price is less sensitive to the benchmark interest rate but more sensitive to the spread yield [46]. 3.2.2 Floating - Rate Bond Duration Valuation Formula (ChinaBond) - The spread duration of a floating - rate bond has a more significant negative correlation with the price, similar to the relationship between the fixed - rate bond's yield to maturity and its price [55]. 3.2.3 Yield to Maturity of Floating - Rate Bonds in Actual Trading - The market still refers to comparable fixed - rate bonds when pricing the yield to maturity of floating - rate bonds. The spread of floating - rate bonds reflects the relative change between the long - term yield to maturity and the short - term benchmark interest rate [63]. 3.3 Relative Investment Value of Floating - Rate Bonds in Different Market Environments 3.3.1 Comparison between Floating - Rate Bonds with LPR as the Benchmark and Fixed - Rate Bonds - In most cases, floating - rate bonds linked to LPR underperformed fixed - rate bonds from 2023 to 2026 because the LPR was in a downward trend during the tenure of the floating - rate bond, and the coupon rate gradually decreased, failing to hedge against the increase in the yield to maturity [77]. 3.3.2 Comparison between Floating - Rate Bonds with DR007 as the Benchmark and Fixed - Rate Bonds - Floating - rate bonds underperformed fixed - rate bonds in bull and volatile markets. In bear markets, their performance was divided. When the DR007 central rate increased, floating - rate bonds outperformed; when it decreased, they underperformed [85]. 3.3.3 Floating - Rate Bond Investment Strategy - Investors should break the mindset of regarding floating - rate bonds as only "bear - market tools" and focus on the trend of the benchmark interest rate. Floating - rate bonds are more suitable for short - term investment. They are recommended to be allocated when the benchmark interest rate is expected to rise and sold when it is expected to fall. Currently, their relative cost - effectiveness is not prominent [94].

Core Insights - The "Swap Connect" trading and clearing scale has significantly increased, with a total clearing volume of 5.3 trillion yuan in 2025, marking a 45% year-on-year growth [1] - The "Swap Connect" has become a key tool for foreign investors to manage RMB interest rate risks since its launch in May 2023, contributing to the ongoing high-level opening of China's financial market [1] - The trading structure is primarily based on the 7-day interbank repo rate (FR007), with a growing variety of transaction types and an expanding participant base [2] Group 1 - In Q4 2025, the cumulative clearing volume of "Swap Connect" reached 1.33 trillion yuan, with 110 domestic and foreign investors participating, covering regions including China, Europe, the US, Australia, Southeast Asia, South Korea, and Japan [1] - The daily net limit for "Swap Connect" was raised to 45 billion yuan in October 2024, which effectively increased overall trading volume [1] - The clearing volume of "Swap Connect" accounted for 12.05% of the total clearing volume in the interbank interest rate swap market during the same period [1] Group 2 - The trading structure is diverse, with a focus on the 7-day interbank repo rate (FR007), while medium to long-term transactions have slightly increased, although most trades remain within one year [2] - Domestic banks and securities firms are the main domestic quote providers for "Swap Connect," with a recent expansion of domestic quote providers and a dynamic adjustment mechanism to enhance market participation [2] - The effective risk management by the central counterparty has been crucial for the stable operation of "Swap Connect," ensuring adequate risk resource reserves and reducing capital occupation for cross-border fund flows [2] Group 3 - In 2025, the types of "Swap Connect" products have been further enriched, with new measures accelerating financial opening and efficiency [3] - The clearing period for "Swap Connect" contracts was extended to 30 years, and new LPR1Y-linked interest rate swaps were included in centralized clearing, attracting active participation from domestic and foreign institutions [3] - Future plans include enhancing the "Swap Connect" mechanisms based on operational experiences and feedback from participants, focusing on diversified risk management needs and strengthening cross-border financial services [3]

Core Insights - The "Swap Connect" trading clearing scale has significantly increased, with a total clearing volume of 5.3 trillion yuan in 2025, marking a 45% year-on-year growth [1] - The initiative has become a key tool for foreign investors to manage RMB interest rate risks since its launch in May 2023, contributing to the ongoing high-level opening of China's financial market [1] Group 1: Market Performance - In Q4 2025, the cumulative clearing volume of "Swap Connect" reached 1.33 trillion yuan, with a total of 9.9 trillion yuan cleared since its inception [1] - The clearing volume accounted for 12.05% of the total clearing volume in the interbank interest rate swap market during the same period [1] Group 2: Participant Dynamics - By the end of 2025, 110 domestic and foreign investors participated in the "Swap Connect" business, covering regions including China (including Hong Kong, Macau, and Taiwan), Europe, the United States, Australia, Southeast Asia, South Korea, and Japan [1] - The participant base has expanded, with domestic banks and securities firms remaining the primary domestic quoting entities, while foreign participants have diversified, particularly with a notable increase in U.S. institutions [2] Group 3: Product Development - In 2025, the types of "Swap Connect" products have been enriched, with new measures introduced to enhance financial openness and efficiency [3] - The clearing period for "Swap Connect" contracts was extended to 30 years, and new interest rate swaps linked to the LPR1Y were included in centralized clearing, attracting active trading from domestic and foreign institutions [3]

Core Viewpoint - BCS Wealth Management has increased its investment in the Invesco BulletShares 2026 Corporate Bond ETF by purchasing 534,928 shares, valued at approximately $10.47 million, reflecting a strategic move to enhance fixed income exposure in its portfolio [1][2]. Group 1: Transaction Details - The purchase of 534,928 shares occurred during the fourth quarter, raising BCS Wealth Management's stake in the ETF to 2.17% of reportable assets under management (AUM) as of December 31 [2][3]. - The fund's quarter-end position value increased by $10.48 million to $21.5 million, influenced by both the share addition and market price changes [2]. Group 2: ETF Overview - The Invesco BulletShares 2026 Corporate Bond ETF has an AUM of $4.3 billion and offers a yield of 4.15% [4]. - As of January 2, the ETF's share price was $19.55, with a one-year total return of 5% [4]. Group 3: Investment Strategy - The ETF targets investment-grade U.S. corporate bonds maturing in 2026, providing predictable income and principal return, appealing to investors seeking a defined investment outcome [6][8]. - It holds nearly 400 investment-grade bonds with an effective duration of just 0.39 years, limiting interest-rate risk while maintaining predictable income [10]. Group 4: Portfolio Composition - The ETF's portfolio is diversified, focusing on securities with maturities in 2026, and is structured to offer exposure to a defined-maturity bond portfolio [8]. - The bond allocation serves as ballast in a portfolio that is heavily weighted towards equities, providing defined cash flows and principal visibility [11].

Financial Data and Key Metrics Changes - For the full year 2025, the company produced $3.49 per share, with net income just under $135 million and a net interest margin (NIM) of 3.9% [4] - In Q4, net income was $34 million, equating to $0.89 per share, slightly down from Q3, with a return on assets (ROA) of 1.37% [5] - The NIM rose to 3.99%, up six basis points from the previous quarter, marking the best performance since Q2 2023 [6] - Non-interest income increased by $500,000 in Q4, with expectations for fees in 2026 to remain around $13 million to $14 million per quarter [13] Business Line Data and Key Metrics Changes - Loan growth for Q4 was just under $100 million at 4.5%, primarily driven by commercial banking, with C&I and CRE portfolios growing by $53 million and $34 million, respectively [8] - Customer deposit growth was just under $60 million at 2.9%, with a strong deposit mix where demand deposits accounted for 27% of total balances [6] - The allowance for credit losses (ACL) decreased from 1.23% to 1.15% quarter over quarter, reflecting a reduction in criticized and classified loans by $30 million, or 13% [10] Market Data and Key Metrics Changes - The company anticipates mid-single digit loan growth for 2026, primarily from C&I and CRE, supported by increased activity from investments in team leadership and banker talent [9] - The company experienced a strong Q4 in customer deposit growth, particularly in the consumer space, despite some anomalous activity with large commercial depositors [36] Company Strategy and Development Direction - The company announced a new $100 million share repurchase authorization, indicating robust capital levels and the ability to consider M&A opportunities [7] - The focus remains on maintaining asset quality while pursuing growth in commercial banking and consumer home equity [9] - The company is committed to adding talent in C&I and CRE to accelerate growth, with a strong emphasis on deposit gathering and developing new relationships [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining asset quality in 2026, with expectations that results will not perform worse than in 2025 [52] - The overall state of the economy is improving, but management is cautious about predicting growth rates significantly higher than GDP [20] - The company is optimistic about its ability to respond to competitive pressures in the deposit market, aiming to grow deposits at a rate that matches loan growth [89] Other Important Information - The TCE ratio decreased by 29 basis points due to share repurchases, but regulatory ratios remain strong with significant excess capital [14] - The company is utilizing AI tools for BSA, AML compliance, and fraud protection, which have resulted in significant savings [67][69] Q&A Session Summary Question: What is holding back loan growth from ramping to mid to high single-digit pace? - Management indicated that it is not a demand issue but ensuring asset quality of new customers meets criteria to maintain lower levels of criticized and classified loans [19] Question: How focused is hiring on the C&I side? - Hiring is a top priority across C&I and CRE, with efforts to enhance deposit gathering and customer relationships [22] Question: What is the outlook on deposit growth and funding loan growth? - The company expects to fund loan growth internally through deposit growth, with a strong focus on core deposit growth [36] Question: Can you provide an update on M&A discussions? - Management confirmed active dialogue across geographies, with a focus on executing current strategies while exploring M&A opportunities [27] Question: What are the competitive factors on the deposit side? - Early Q4 saw pressure from competitors to retain deposits, but the market became more rational in the second half of the quarter [88]

Core Viewpoint - The development of the government bond futures market in China has shown significant growth in both volume and quality, reinforcing its role as a stabilizer and price discovery anchor in the bond market, amidst a complex global macroeconomic environment in 2025 [1][2]. Market Performance and Structure - Despite experiencing multiple fluctuations in 2025, the trading activity and depth of the government bond futures market have increased, with average daily positions reaching 636,400 contracts, a 29.46% increase from 2024, and average daily trading volume rising by 41.88% to 324,700 contracts [2]. - The trading volume for 30-year government bond futures reached 125,500 contracts, indicating a strong demand for long-term interest rate risk management tools among institutions [2]. - The correlation between government bond futures and corresponding cash bonds remained above 99%, providing a smooth risk exit for market participants during liquidity adjustments [3]. - Institutional participation in the government bond futures market has solidified, with institutions accounting for approximately 80% of trading and 90% of positions by November 2025, indicating a shift towards mainstream asset-liability management tools [3]. Product Ecosystem and Strategic Alignment - The government bond futures market has expanded its product offerings, covering key maturities from 2 to 30 years, and is expected to further develop options products to meet diverse risk management needs [4]. - The introduction of government bond options is anticipated to fill the gap in domestic interest rate options products, enhancing the ability of institutions to manage tail risks [4]. - The government bond futures market has evolved from merely managing risks to supporting macroeconomic policies and financing for the real economy, with increased government bond issuance in 2025 [4][5]. - The use of government bond futures by underwriters has improved their ability to hedge interest rate risks during the bond issuance process, facilitating smoother issuance of government and local bonds [5]. Impact on Financing Costs and Asset Allocation - The growth of the government bond futures market has indirectly reduced financing costs for the real economy, as institutional investors manage interest rate risks, enhancing liquidity and pricing efficiency in the credit bond market [6]. - Various types of long-term funds are increasingly utilizing government bond futures for asset allocation, transitioning from a risk stabilizer to a core component of asset allocation strategies [6][7]. - Insurance funds are leveraging 30-year government bond futures to extend the overall duration of their asset portfolios, addressing the challenge of duration mismatch between assets and liabilities [7]. - Pension funds are using government bond futures for tactical asset allocation, locking in future bond costs and hedging against equity market volatility [7]. - Public funds are employing diverse strategies with government bond futures, enhancing risk-adjusted returns and managing liquidity effectively [7]. Future Outlook - The government bond futures market is expected to continue evolving, with plans to ensure stable and regulated operations, enhance existing products, and broaden the participant base, thereby playing a crucial role in the development of China's capital market [8].

Report Industry Investment Rating No information provided on the report industry investment rating. Core Views - Amid complex global macro - economic conditions and increased bond market volatility, traditional bond long - only strategies face challenges, and treasury bond futures have become important for risk management and asset allocation in bond investment portfolios [13]. - The report details the current situation of public funds' participation in treasury bond futures, analyzes the design logic of negative - duration funds, and explores using treasury bond futures to hedge interest - rate risks for all - weather bond asset allocation [13]. Summary by Related Catalogs Public Funds' Current Participation in Treasury Bond Futures - **Increasing Position Size with 1% Market Share**: By the end of Q3 2025, 141 public funds held treasury bond futures, holding a total of 13,068 contracts, including 3,992 long contracts (0.6% of the market) and 9,076 short contracts (1.4% of the market). Public funds are required to disclose treasury bond futures trading information in regular reports [17]. - **Short - Dominant Position Structure**: At the end of Q3 2025, 79 public funds held net short positions in treasury bond futures, with a short - contract market value of about 11 billion yuan, compared to 60 funds with net long positions and a long - contract market value of about 5.6 billion yuan, indicating a preference for short positions to hedge interest - rate risks [18]. - **Strategy and Contract Selection: Focus on Single - Variety and Single - Maturity**: In Q3 2025, 63.8% of funds held single - maturity treasury bond futures contracts (39 long - position and 51 short - position funds), while 36.2% held multi - variety or multi - maturity contracts [24]. - **Concentration on Active Contracts**: In Q3 2025, over 90% of public funds' positions were in the T2512, TS2512, and TL2512 active contracts, and the number of short positions in the TL2512 and T2512 contracts was significantly higher than long positions [27]. - **Mid - and Long - Term Pure - Bond Funds as the Main Allocators**: By the end of Q3 2025, mid - and long - term pure - bond funds were the main participants in treasury bond futures, with 47 funds holding positions, followed by hybrid bond - type secondary funds with 29 funds. The scale of mid - and long - term pure - bond funds' positions was about 8.78 billion yuan [28][33]. - **Leading Layout by Top - Tier Institutions**: By the end of Q3 2025, top - tier fund companies led in treasury bond futures layout. Harvest Fund and E Fund each had 14 related products, followed by China Merchants Fund with 10 products [37]. - **Significant Differences in Allocation Intensity Among Products**: The allocation intensity of public funds to treasury bond futures varies. For example, E Fund Credit Bond has a higher short - position allocation ratio than the market average, and Huataibaoxing Kaiyuan 3 - Month has a contract - market - value - to - fund - scale ratio of 27.1%, much higher than the industry average [40]. Negative - Duration Investment Strategy Based on Treasury Bond Futures Shorts - **Existing Negative - Duration Funds**: There are few negative - duration funds in the market, and the degree of negative duration is limited. This may be due to data errors in calculations and regulatory requirements for hedging purposes [46]. - **Constructing a Negative - Duration Portfolio**: Under regulatory constraints, to maximize negative duration, the following steps can be taken: invest only in cash bonds and treasury bond futures, set the short - position market - value ratio of treasury bond futures at a maximum of 30%, set the portfolio leverage at a maximum of 140%, short 30 - year treasury bond futures, and choose short - term bonds with a duration close to 0. The longest negative duration of a fund can reach - 7.1 years [51][55].

Report Industry Investment Rating - Not provided in the report Core Viewpoints - Since 2025, the global macro - economic environment has been complex and volatile. The bond market has entered a new cycle of increased volatility. Relying solely on traditional bond long - only strategies faces challenges, and treasury bond futures have become important tools for risk management and asset allocation. The report details the current situation of public funds' participation in treasury bond futures and explores the design logic of negative - duration funds to achieve all - weather allocation of bond assets [13] Summary by Relevant Catalogs Public Funds' Current Participation in Treasury Bond Futures - **Increasing Position Size and 1% Market Share**: By the end of Q3 2025, 141 public funds held treasury bond futures, with a total of 13,068 contracts (3,992 long contracts, accounting for 0.6% of the market's long contracts; 9,076 short contracts, accounting for 1.4% of the market's short contracts). Public funds are required to disclose treasury bond futures trading information in regular reports [15][17] - **Short - Dominated Position Structure**: As of the end of Q3 2025, 79 public funds had net short positions in treasury bond futures, while 60 had net long positions. The market value of short contracts was about 11 billion yuan, higher than the 5.6 - billion - yuan market value of long contracts, indicating a preference for short positions to hedge against interest - rate risks [18] - **Strategy and Contract Selection: Focus on Single - Variety and Single - Maturity**: In Q3 2025, 63.8% of funds held single - maturity treasury bond futures contracts, with 39 long - position funds and 51 short - position funds, far more than those using cross - variety or cross - maturity strategies [23][24] - **Concentration on Active Contracts**: In Q3 2025, the combined position of T2512, TS2512, and TL2512 active contracts accounted for over 90%. The number of short contracts for TL2512 and T2512 was significantly higher than that of long contracts [27] - **Mid - and Long - Term Pure Bond Funds as the Main Force**: By the end of Q3 2025, mid - and long - term pure bond funds were the main participants in the treasury bond futures market, with 47 funds, an increase of 4 compared to Q2. The number of partial - debt hybrid funds also increased, while the number of short - term pure bond funds, hybrid bond - type secondary funds, and hybrid bond - type primary funds decreased [28][31] - **Leading Layout by Top - Tier Institutions**: By the end of Q3 2025, top - tier fund companies such as Harvest Fund and E Fund each had 14 related products, showing an advanced ability in interest - rate risk management [37] - **Significant Differences in Allocation Intensity**: The allocation intensity of treasury bond futures among different public funds varies greatly, mainly due to differences in investment strategies, risk - tolerance levels, and interest - rate risk judgments. For example, E Fund Credit Bond had a higher short - position allocation ratio than the market average, and Huataibaoxing Kaiyuan 3 - Month had a contract - value - to - fund - scale ratio of 27.1% [40] Negative - Duration Investment Strategy Based on Treasury Bond Futures Shorts - **Stock "Negative - Duration" Funds**: The current stock of "negative - duration" funds is small, and the degree of "negativity" in duration is limited. This may be due to data errors in the calculation and the regulatory requirement of using treasury bond futures for hedging purposes. These funds typically hold bonds with a duration of about one year, mainly short 10 - year and 30 - year treasury bond futures, and the combined duration of futures and bonds is mostly within negative one year [46] - **Constructing a "Negative - Duration" Portfolio**: To maximize the negative duration within regulatory requirements, the following operations can be adopted: investing only in cash bonds and treasury bond futures, setting the short - position market value of treasury bond futures at a maximum of 30%, leveraging the portfolio to a maximum of 140%, short - selling 30 - year treasury bond futures, and choosing short - term bonds with a duration close to 0. The maximum negative duration of the fund can reach - 7.1 years [50][51][55]

Core Viewpoint - The recent qualification of Xingyin Wealth Management and Bank of China Wealth Management to independently conduct interest rate swap transactions marks a significant advancement in the wealth management industry, enhancing their ability to manage interest rate risks and stabilize product net values [1][3]. Group 1: Qualification and Market Impact - Xingyin Wealth Management and Bank of China Wealth Management are among the first wealth management companies to obtain qualifications for centralized clearing of interest rate derivatives in the interbank market, allowing them to engage in independent interest rate swap transactions [1][3]. - This qualification enhances the flexibility of business operations and strengthens risk management capabilities, enabling wealth management companies to hedge interest rate fluctuations effectively [1][2]. - The issuance of such licenses reflects a cautious but progressive regulatory stance, indicating a shift in the competitive landscape of the wealth management industry towards asset allocation and risk hedging capabilities [3]. Group 2: Risk Management Tools and Strategies - The introduction of centralized clearing for interest rate swaps expands the range of risk management tools available to wealth management companies, allowing for better management of interest rate risks and enhancing asset allocation flexibility [1][2]. - The standard interest rate swap transactions, which are linked to the issuance rates of 3-month and 1-year interbank certificates of deposit, are crucial for managing interest rate risks more precisely [2]. - The ability to adapt investment strategies to different risk preferences and broaden revenue potential across various product types is a key benefit of this new capability [2][3]. Group 3: Challenges and Development Needs - Despite the advancements, the scale of derivative products remains small, primarily due to conservative investor risk preferences and high market volatility, which hampers growth in this area [4]. - Enhancing derivative investment capabilities requires a focus on building a skilled research and investment team, improving risk management frameworks, and ensuring robust technological systems to support trading and clearing processes [5][4]. - The need for financial engineering expertise and the application of financial technology, particularly AI, are critical for commercial banks to improve their derivative investment capabilities [4][5].

Core Viewpoint - Su Yin Financial Leasing Company has successfully completed the first RMB interest rate swap (IRS) transaction in the financial leasing industry, marking a significant breakthrough in interest rate risk management [1] Group 1: Company Achievements - The successful IRS transaction demonstrates Su Yin Financial Leasing's commitment to serving the real economy and its proactive approach to financial innovation [1] - The transaction was conducted with the professional guidance and support of the China Foreign Exchange Trading Center and Shanghai Clearing House, achieving fully online standardized trading and centralized clearing [1] Group 2: Industry Impact - The transaction effectively reduced counterparty credit risk and significantly improved the efficiency and transparency of the entire trading process, setting a benchmark for the leasing industry in conducting interest rate derivative business [1] - Su Yin Financial Leasing plans to deepen cooperation with core financial infrastructures and continuously enrich its risk management toolbox to enhance its core competitiveness [1]