1. Report Industry Investment Rating No relevant content provided. 2. Core Views of the Report - In 2025, the urban investment bond market entered a low - volatility and long - short differentiation era with record - low net financing and issuance rates, and the shortest historical volatility and widening term spreads [1][47] - As 2027 June approaches, 2026 may be the starting point for urban investment bonds to return to differentiation. Although short - term risks are controllable, long - term transformation is inevitable [2][3] - In 2026, short - duration sinking strategies are still applicable, while long - duration band trading is difficult to grasp [4][5] 3. Summary by Relevant Catalogs 3.1 2025, Low - Volatility and Long - Short Differentiation in the Stock Era 3.1.1 Net Financing and Issuance Rates Hit Record Lows - In 2025, new debt - resolution policies decreased, focusing on exiting key provinces and platforms, and "resolving existing debts and curbing new ones." The bond - issuance policy tightened, and the net financing of urban investment bonds reached a record low. From January to November, it was only 4 billion yuan, and there was a possibility of turning negative [11][17] - Low - level and medium - low - grade entities had large net repayment volumes. AA and below low - grade bonds and AA+ bonds had negative net financing, and district - county and park - level bonds also had negative net financing [21] - Most provinces saw a decline in net financing. Jiangsu had a net repayment of over 100 billion yuan, while Guangdong had a net financing of 8.77 billion yuan [22][23] - The issuance rate of urban investment bonds fluctuated downward, reaching a historical low in July. Except for Guizhou, the average issuance rate of other provinces was between 2% - 2.8%, and most provinces' rates decreased compared to the beginning of the year [27][31] 3.1.2 The Smallest Volatility in History and Widening Term Spreads - In the secondary market, the yield of urban investment bonds fluctuated in an "M" shape, and the credit spread narrowed. Taking the 3 - year AA+ implicit - rating urban investment bond as an example, the yield increased slightly by 14bp, and the credit spread narrowed from 47bp to 25bp [34] - 2025 was the year with the lowest static yield and the narrowest volatility for urban investment bonds. The mid - value of the 3 - year AA+ implicit - rating bond yield decreased by about 40bp, and the volatility range was only 29bp [37] - The short - and medium - term volatility narrowed significantly. The volatility range of the 3 - year AA variety narrowed from 72bp to 23bp [41] - The term spread of urban investment bonds widened. By the end of February, the term spreads were at historical lows, but then widened from February to October [42] 3.2 Approaching June 2027, 2026 May Be the Starting Point for Urban Investment to Return to Differentiation - In 2026, most urban investment bond investments will have maturities after June 2027. The scale of bonds maturing or exercisable after June 2027 has exceeded half of the total, and by the end of 2026, over 80% of bonds are expected to mature after June 2027 [48] - The speed of urban investment platforms exiting the list has accelerated since the second half of 2025, and the number of issuers declaring themselves as market - oriented business entities has increased significantly [49] - Whether the market's preference for urban investment bonds will change depends on local governments' willingness and ability to repay debts. Currently, the connection between urban investment and local governments remains close, and the tail - end regional risks have been mitigated to some extent. The market has not over - priced the issuers exiting the list [2][54][59] - In the long run, as traditional public - welfare businesses saturate, urban investment transformation is inevitable. The pricing of credit spreads may become more market - oriented, and 2026 may be the starting point for the return of differentiation, which is a long - term and gradual process [3][64][70] 3.3 In 2026, Short - Duration Sinking Is Still Applicable, and Band Trading May Be Difficult to Grasp - Urban investment bonds were the best - performing assets in the bond market in 2025. Short - duration sinking can still provide good returns with significantly reduced volatility. For example, the 90 - day moving average annualized return of 1 - year AA - implicit - rating urban investment bonds was 2.6%, and the volatility decreased to 0.67% [4][75][78] - It is recommended to focus on 1 - 3 - year AA(2) and 2 - 3 - year AA urban investment bonds, which have an average yield of over 2%, a large balance of outstanding bonds (3.1 trillion yuan in total), and good liquidity. The monthly transaction volume accounts for 4% - 10% [81] - Band trading of long - duration urban investment bonds in 2026 may be difficult to grasp. The participation in long - duration bonds may be similar to 2025, with less incremental funds. If the trend of interest - rate bonds is not obvious, band trading will be challenging. Long - duration bonds have weak liquidity, and it is recommended to choose AAA - rated entities in developed provinces [5][88]

Report Summary 1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Core Viewpoints - Since the central government proposed a comprehensive debt - resolution plan in July 2023, over two years have passed, and the progress towards the goal of eliminating implicit local government debt by 2028 is nearly halfway. The debt - resolution efforts have achieved results in both "resolving existing debt" and "curbing new debt" [2][10][11]. - Although local government comprehensive financial resources have declined since 2021 and the overall debt volume has increased, the interest - payment cost has decreased. In 2025, the overall interest - payment pressure is expected to improve compared to 2024, and the tail - end risks have been mitigated [3][34][37]. - In城投 bond investment, there are three major changes: the credit spread has significantly narrowed, showing characteristics similar to interest - rate bonds; the regional differentiation has been significantly reduced; and in the context of low static yields, investors are trying to gain returns from duration, but the timing difficulty has increased [4][49]. 3. Summary by Relevant Catalog 3.1 "Mid - term Exam" of Debt Resolution: Achievements in "Resolving Existing Debt and Curbing New Debt" - **Policy Background**: From July 2023 to October 2025, a series of policies were introduced to promote debt resolution, and the "14th Five - Year Plan" for debt resolution has started a new journey [10]. - **Resolving Existing Debt**: By the end of 2024, the implicit debt was 10.5 trillion yuan, nearly 4 trillion yuan less than in 2023. As of the end of August 2025, 4 trillion yuan of the additional 6 - trillion - yuan special debt quota had been issued. After replacement, the average interest cost of debt decreased by over 2.5 percentage points, saving over 450 billion yuan in interest [11]. - **Debt Structure Optimization**: The proportion of high - cost non - standard debt decreased. By the end of 2024, the non - standard debt proportion in national urban investment interest - bearing debt was 4.8%, down 1.1 percentage points from the end of 2023. Most provinces saw a decline in non - standard debt proportion [12][13]. - **Stable Scale and Reduced Cost of Urban Investment Bonds**: Since July 2023, the scale of urban investment bonds has remained stable at around 16 trillion yuan, and the weighted average coupon rate has dropped from about 4.5% to 3.2%, saving about 20 billion yuan in annual interest [14]. - **Reduced Interest - Payment Cost of Total Interest - Bearing Debt**: The national urban investment total interest - bearing debt interest - payment cost dropped from 5.18% at the end of 2022 to about 4.9% at the end of 2024, and most provinces saw a decline in interest - payment pressure [19]. - **Reduced Non - standard Debt Risks**: The number of non - standard defaults of urban investment has significantly decreased, and the number of non - standard financing new additions, such as trust financing, has also declined [23][30]. - **Controlled Debt Growth**: The growth rate of urban investment interest - bearing debt has been well - controlled, dropping to 5.5% in 2024 and further to 4.9% in the 2025 semi - annual report [27]. 3.2 Mitigation of Tail - end Regional Risks: Overall Debt in Tight Balance - **Decline in Local Comprehensive Financial Resources**: Affected by factors such as economic slowdown and the cold land market, local government comprehensive financial resources reached a peak of about 20.5 trillion yuan in 2021 and then gradually declined to 17.66 trillion yuan in 2024, a 13.8% decrease compared to 2021 [34]. - **Increasing Debt Volume**: The balance of broad - based local government debt reached about 110 trillion yuan at the end of 2024, a 43% increase compared to 2021 [37]. - **Interest - Payment Pressure and Risk Mitigation**: Since 2021, the local government interest - payment pressure has gradually increased. It is expected to improve in 2025 but has not returned to the 2021 level. About two - thirds of the provinces are expected to see an improvement in interest - payment ability in 2025, and the tail - end risks have been mitigated [41][45]. 3.3 "Interest - Rate" Characteristics of Urban Investment Bond Returns: From Regional Differentiation to Duration Timing - **Narrowed Credit Spread**: Before debt resolution, the credit spread of urban investment bonds was over 200bp, 26bp higher than that of industrial bonds. Now it has narrowed to 55bp, and the excess spread compared to industrial bonds has been eliminated [49]. - **Reduced Regional Differentiation**: The gap between the provinces with the highest and lowest credit spreads has shrunk from over 700bp to less than 100bp, and the average credit spread of 12 key provinces has narrowed from 362bp to about 60bp [57][59]. - **Increased Duration Timing Difficulty**: In the context of low static yields, investors try to gain returns from duration, but since 2025, the contribution of the duration - extension strategy to returns has been negative, and the timing difficulty has increased significantly [4][60].