1. Report Industry Investment Rating No information about the industry investment rating is provided in the report. 2. Core View of the Report - The issuance and net financing of local government bonds increased this period but are expected to decline next period. The current 10Y and above local government bonds still have certain cost - effectiveness, but the potential pressure of increased bond supply after the Two Sessions should be vigilant [2]. 3. Summary According to the Table of Contents 3.1 This period, the issuance volume of local government bonds increased, and the weighted issuance term shortened - The total issuance/net financing of local government bonds this period (2026.3.2 - 2026.3.8) was 2724.84 billion yuan/2562.29 billion yuan (2564.20 billion yuan/1894.23 billion yuan in the previous period), and the expected issuance/net financing next period (2026.3.9 - 2026.3.15) is 1355.45 billion yuan/632.14 billion yuan [2][6]. - The weighted issuance term of local government bonds this period was 17.95 years, shorter than 21.76 years in the previous period [2][8]. - The issuance spreads of 10/30 - year local government bonds compared with the same - term national bonds increased to 17.45BP/decreased to 21.00BP this period (12.09/23.46BP in the previous period), and the full - field multiples increased [2][9]. - Compared with the same period in 2024 and 2025, the issuance progress of new general bonds this year is slower, but the issuance progress of new special bonds is faster. As of March 6, 2026, the cumulative issuance of new general bonds/new special bonds accounted for 26.9% and 20.5% of the annual quota respectively, and considering the expected issuance next period, it will be 29.3% and 20.9% [2][10][12]. - The planned issuance scale of local government bonds in March 2026 is 936.2 billion yuan, of which new special bonds are 302.7 billion yuan. As of March 6, 2026, 24 regions have disclosed the planned issuance scale of local government bonds in March 2026, with new special bonds of 302.7 billion yuan [2][20][21]. - This period, the special new special bonds issued 5.6 billion yuan, and the special refinancing bonds for replacing hidden debts and repaying existing debts issued 112.6 billion yuan and 0 billion yuan respectively. As of March 6, 2026, the cumulative issuance of special new special bonds in 2026 was 105.5 billion yuan; the cumulative issuance of special refinancing bonds for replacing hidden debts was 792.3 billion yuan, with an issuance progress of 39.6%; the cumulative issuance of special refinancing bonds for repaying existing debts was 3.6 billion yuan [2][15][16]. 3.2 This period, the spread between local government bonds and national bonds narrowed for 10Y and widened for 30Y, and the weekly turnover rate increased significantly - As of March 6, 2026, the spreads between 10 - year and 30 - year local government bonds and national bonds were 19.90BP and 20.88BP respectively, narrowing by 2.57BP and 0.14BP compared with February 28, 2026, and were at the 52.60% and 80.00% historical quantiles since 2023 respectively [2][23][27]. - The weekly turnover rate of local government bonds this period was 1.10%, a significant increase compared with 0.42% in the previous period [2][33]. - This period, the yields and liquidity of 7 - 10Y local government bonds in regions such as Qinghai, Heilongjiang, and Jilin were better than the national average [2].

Group 1 - The investment in local government bonds is gaining momentum, combining both allocation and trading opportunities, with the market increasingly focusing on the investment cost-effectiveness of local bonds since 2023 [1][12][13] - The total scale of local government bonds has grown significantly, from 1.16 trillion yuan at the end of 2014 to an expected 50 trillion yuan by 2025, with an average annual growth rate of approximately 45% [12][18] - The demand for local bonds is expanding, with commercial banks, broad funds, insurance self-managed, and securities firms being the four main holding institutions, while the proportion held by commercial banks has been gradually decreasing [3][25][32] Group 2 - The supply of local bonds is characterized by three main features: increasing average issuance size, lengthening maturity structure, and stable regional structure [2][16][21] - The average issuance size of local bonds has risen significantly, with the average size reaching 66 billion yuan in early 2025, indicating a more dispersed holding structure that facilitates active trading [16][18] - The proportion of local bonds with a remaining maturity of 10 years or more has increased from 4.1% at the end of 2019 to 36.0% by the first quarter of 2025, reflecting a shift towards longer-term investments [2][22] Group 3 - The pricing rules in the secondary market for local bonds are closely tied to government bonds, with the yield spread between local and government bonds exhibiting a mean-reverting characteristic [4][12] - Historical analysis shows that the widening spread between local and government bonds can occur due to concentrated supply pressures or during bullish market phases [4][12] - The investment experience of holding local bonds compared to government bonds shows that local bonds can provide higher excess returns, especially for 10-year and 30-year maturities [6][7][12]