Key Points - The report indicates that there is still potential for credit spread compression, particularly in the context of different bond types and their excess spreads compared to similar maturity and rating bonds [1][3][35] - As of January 30, 2026, the excess spreads for 3Y AAA-rated bank subordinated bonds, perpetual bonds, and industrial bonds are 6.1BP, 6.6BP, and 11.0BP, respectively, which are at the 92%, 79%, and 44% percentiles since early 2025 [1][3][35] - The report suggests that the selection of bonds based on value for money ranks as follows: bank subordinated bonds > perpetual bonds > urban investment bonds > industrial bonds [1][35] Credit Strategy Review for January 2026 - The yield of bank subordinated bonds has significantly decreased, and the excess spreads remain high, indicating potential for further compression [3][6] - The report notes that the 3Y AA+ urban investment bond yield decreased by 9BP, with the yield at the end of January 2026 being 1.91% [11] - Factors contributing to the decline in credit bond yields include limited corporate financing demand, stable credit issuance, and a loose funding environment [11][14] Performance of Different Credit Strategies - In January 2026, the performance of various credit strategies ranked as follows: duration extension > barbell strategy > 3Y bullet strategy > short-end sinking [15] - The returns for the duration extension strategy for urban investment bonds, industrial bonds, bank subordinated bonds, and perpetual bonds were 0.65%, 0.85%, 0.76%, and 0.82%, respectively [15][18] - The report highlights that the short-end sinking strategy yielded returns of 0.16%-0.19% across different bond types, although its performance was generally average [17][18] Outlook for February 2026 - The report anticipates that the overall funding environment will remain tight, with a weak recovery in the fundamentals [35] - It is expected that the central bank's operations will lead to a decrease in funding rates, potentially resulting in a further decline in long-term bond yields by 5-10BP in Q1 2026 [35] - The report emphasizes that the credit spread compression trend is likely to continue, with a focus on the performance of various bond types [35]

1. Report Industry Investment Rating No information about the industry investment rating is provided in the given content. 2. Core Views of the Report - Interest rates have a "range", while credit has no clear anchor, and the coupon is more certain. Compared with the yield lows in the second half of last year, the credit of over 3y has not fully recovered, with Tier 2 and perpetual bonds performing better than urban investment bonds [3]. - Compared with the time when the draft of the new regulations on public - fund sales solicitation was released in early September last year, the recovery of Tier 2 and perpetual bonds, especially those over 3y, has been mediocre. In the previous unclear bond - market outlook, the strategy of extending duration for trading - type bonds was not favored [3]. - The supply pressure is not significant. Due to the Spring Festival factor, the issuance of credit bonds generally slows down in January and February. As of January 23, the issuance of non - financial credit bonds was 891.4 billion yuan, which is not large compared with previous years [3]. - The opening of amortized cost bond funds can still be exploited, which is beneficial for credit bonds with maturities of less than 2y and more than 5y. The amortized cost bond funds opened 257.5 billion yuan in the fourth quarter of last year and 264.5 billion yuan in the first quarter of this year. The products' closed - end periods are mainly over 5y and under 2y, which will continue to create new allocation demand for credit bonds and support the long - position market of credit bonds [3]. 3. Summary According to Relevant Catalogs 3.1 Strong Credit Pattern Continues, High Demand for 3 - 5y and Tier 2/Perpetual Bonds - Since the beginning of the year, the credit spread has been passively compressed, and this situation continued last week. The 3 - 5y maturity performed the best. The yields of 3 - 5Y medium - term notes decreased by about 4 - 7bp; the yields of low - grade 3 - 4Y urban investment bonds decreased by about 5 - 10bp; the yields of 3 - 4Y Tier 2 and perpetual bonds decreased by about 3 - 4bp [9]. - From the trading indicators, the credit - bond market is booming. The average trading duration of credit bonds has slightly increased to 2.54 years, the TKN trading proportion has continuously risen from 54.7% in the second week of this year to around 73.4%, and the low - valuation trading proportion has also risen above 70% [17]. - The trading volume of Tier 2 and perpetual bonds has reached the highest level since September last year, showing higher popularity than urban investment bonds [18]. 3.2 Can the Strong Credit Pattern Continue? 3.2.1 Interest Rates Have a Range, Credit Is More Certain - Compared with interest rates, as interest rates are approaching the "lower limit", the downward rhythm of interest rates may slow down in the short term without other positive catalysts. Credit bonds have no absolute reasonable range, and the market still lacks confidence in long - term interest rates. Therefore, in the absence of a liquidity shock in the bond market, the coupon of credit bonds is more certain [20]. - Comparing with four time points (the end of last year, the yield lows of credit bonds in November and July last year, and the time when the draft of the new regulations on public - fund sales solicitation was released in early September last year), the performance of medium - and long - term credit bonds has been outstanding this year, especially the Tier 2 and perpetual bonds have a clear catch - up market. Compared with the yield lows in November and July, the yields of long - term credit bonds still have room to decline, with Tier 2 and perpetual bonds performing better than urban investment bonds, while the short - end yields are already close to or lower than the corresponding points [21]. 3.2.2 The Impact of the New Regulations on Public - Fund Sales Has Not Been Fully Recovered - After the release of the draft of the new regulations in September last year, the market was generally worried that the funds of institutions such as wealth management and bank self - operation would be affected by the redemption regulations in the future and would no longer participate in Tier 2 and perpetual bonds through public - funds. As a result, the price ratio between 5Y AAA - Tier 2 bonds and medium - term notes widened by nearly 20bp from September to December last year. - The implementation of the new regulations on public - fund sales rates at the beginning of this year was better than expected, and Tier 2 and perpetual bonds had a recovery market. The price ratio between 5Y AAA - Tier 2 bonds and medium - term notes compressed by 2.6bp, and the 3Y variety compressed by about 3.7bp. Overall, the recovery of Tier 2 and perpetual bonds has been mediocre, and they may continue to outperform in the future [23]. 3.2.3 The Supply Disturbance of Credit Is Not Significant - From the perspective of bond supply, the issuance of treasury bonds has increased significantly at the beginning of the year, and the primary supply pressure of the interest - rate bond market is greater than in previous years. To support the early implementation of fiscal policies, the issuance of government bonds may continue to increase in the last week of January and February. For credit bonds, due to the Spring Festival factor, the issuance generally slows down in January and February. As of January 23 this year, the issuance of non - financial credit bonds was 891.4 billion yuan, which is not large compared with previous years. Compared with interest - rate bonds, the supply pressure of credit bonds is smaller, which is likely to form a strong credit pattern [30]. 3.2.4 Exploiting the Opening of Amortized Cost Bond Funds - In the first quarter, a large number of amortized cost bond funds entered the intensive opening period again. Calculated based on the fund scale disclosed in the fourth - quarter report of 2025, the scales entering the opening period in January, February, and March were 81.1 billion yuan, 59.4 billion yuan, and 124 billion yuan respectively, with a total of 264.5 billion yuan (compared with 257.5 billion yuan in the fourth quarter of last year). - After the opening period, the products tend to allocate bonds with remaining maturities close to their closed - end periods. The closed - end periods of the products entering the opening period in the first quarter are mainly over 5y and under 2y, with scales of 129.7 billion yuan and 78.1 billion yuan respectively. - The re - allocation of amortized cost bond funds in the fourth quarter of last year was mainly concentrated in credit bonds, and this trend is expected to continue. On the one hand, it enhances the certainty of short - term credit, and on the other hand, it promotes the yields of long - term credit to continue to decline. Since last year, the long - term interest - rate game has been difficult, and the investment income and holding experience of interest - rate bond funds have been inferior to those of credit - bond funds. Therefore, amortized cost bond funds are likely to overweight credit bonds [34]. 3.3 How to View Institutional Behavior - Last week, insurance institutions increased their purchases of general - credit bonds, with a total net purchase of 7.6 billion yuan, mainly increasing the allocation of general - credit bonds with maturities under 3Y, with a new net purchase of 4 billion yuan. The allocation of Tier 2 and perpetual bonds decreased, but the purchase of 5 - 10Y Tier 2 and perpetual bonds increased [38]. - Funds also increased their allocation of general - credit bonds, with a total net purchase of 42.3 billion yuan last week, a month - on - month increase of 11.3 billion yuan. The purchase duration has been slightly extended, with a slight increase in the allocation of 3 - 5Y varieties, and the net purchase of 5 - 10Y varieties turned positive for the first time this year. In terms of Tier 2 and perpetual bonds, funds increased their holdings by 63.6 billion yuan last week, a month - on - month increase of 32.4 billion yuan, mainly increasing their holdings of 3 - 5Y varieties [40]. - The scale of wealth management increased compared with last week. As of January 18, the scale of bank wealth management was 31.57 trillion yuan, remaining basically flat month - on - month. Wealth management increased its holdings of general - credit bonds by 4.5 billion yuan, but the increase was lower than last week. Wealth management changed from net selling to net buying of Tier 2 and perpetual bonds, mainly increasing the allocation of varieties with maturities under 1Y [42][44]. 3.4 Primary - Market Tracking: Increased Supply of Industrial Bonds and Other Financial Bonds - From January 19 to 25 last week, urban investment bonds still had a net outflow, with a net financing of - 25.4 billion yuan, and the net outflow scale decreased. The supply of industrial bonds increased, with a weekly net financing of 133.7 billion yuan [47]. - By province, the top three regions in terms of net financing of urban investment bonds this year are Jiangsu (10.1 billion yuan), Beijing (6.8 billion yuan), and Guangdong (6.7 billion yuan). The top three regions with net outflows are Tianjin (- 7.1 billion yuan), Chongqing (- 5.3 billion yuan), and Hunan (- 4.7 billion yuan) [49]. - By industry, the top three industries in terms of net financing of industrial bonds this week are Building Decoration (19 billion yuan), Food and Beverage (14.7 billion yuan), and Public Utilities (13.3 billion yuan) [51]. - This month, the weighted average issuance duration of urban investment bonds has extended to 3.57 years, while that of industrial bonds has shortened to 1.86 years, and the issuance proportion of bonds with maturities over 5y has significantly decreased. The primary - market issuance sentiment of urban investment bonds has significantly improved, with the proportion of full - field multiples above 3 times increasing to 56%, a month - on - month increase of 14pct. The proportion of full - field multiples above 3 times in the issuance of industrial bonds increased to 22% [53][54]. - Two industrial bonds were postponed for issuance this week, with a total postponed issuance scale of 900 million yuan [57]. 3.5 Secondary - Market Tracking: Significant Increase in the Trading Proportion of 3 - 5y Tier 2 and Perpetual Bonds - The trading proportion of urban investment bonds with short maturities under 1y increased by 1pct compared with last week, that of industrial bonds increased by 3pct month - on - month, and that of Tier 2 and perpetual bonds decreased by 2pct month - on - month, but the trading proportion of 3 - 5y increased by 11pct month - on - month [60]. - This week, the trading proportion of Tier 2 and perpetual bonds with an implied rating of AA+ continued to increase. The trading proportion of urban investment bonds with a rating of AA(2) and below decreased by 1pct month - on - month compared with last week, that of industrial bonds with a rating of AA and below remained flat month - on - month, and that of Tier 2 and perpetual bonds with a rating of AA+ increased by 5pct month - on - month [60].

Group 1 - The overall outlook for credit bonds in November remains optimistic, influenced by the new public fund redemption fee regulations and changes in the equity market [1][23] - The credit bond yield curve showed a downward trend in October, particularly after the central bank announced the resumption of government bond trading, leading to a better performance of credit bonds compared to interest rates [2][16] - Historical performance of credit strategies in November since 2021 indicates that most strategies have yielded positive returns, except for the negative impact seen in November 2022 due to a redemption wave [9][12] Group 2 - In October, the strategy of extending duration yielded the best returns among various credit strategies, with city investment bonds outperforming others [4][6] - The yield of 3Y AAA-rated secondary capital bonds decreased from 2.06% to 1.90% by the end of October, reflecting a strong upward trend in credit bonds [16] - The historical percentile rankings for various credit bonds indicate that there is still room for yields to decline, particularly for 5Y secondary capital bonds [22][23] Group 3 - The investment recommendation for November suggests maintaining a relatively optimistic stance on credit strategies, supported by high historical percentiles and a favorable liquidity environment [22][23] - The resumption of government bond trading and overall loose funding rates are expected to continue supporting the upward trend in credit bonds, although the depth of this trend remains to be observed [22][23] - The cost of liabilities for banks has decreased significantly, encouraging increased investment in bonds [22][23]

Group 1 - The core view of the report emphasizes that short-end sinking strategies have outperformed in September 2025, with various credit strategies yielding positive returns due to sufficient coupon income covering capital loss, although the contribution to overall returns was limited [2][3][4] - Historical performance of credit strategies in October since 2021 shows that most strategies have achieved positive returns, with a notable success rate for bullish credit positions in October [10][24] - The report suggests that in the current steep yield curve environment, increasing allocation to medium and long-term credit bonds and utilizing bond repurchase agreements to introduce leverage could significantly enhance the returns of the strategies [10][24] Group 2 - In September 2025, the market was cautious due to concerns over new public fund sales regulations, leading to a tightening of credit bond market sentiment [3][4] - The report highlights that the performance of various credit strategies in September was negatively impacted by rising interest rates, with some strategies recording capital losses exceeding 1% [3][4][5] - The anticipated liquidity support from the central bank's operations in October 2025 is expected to bolster the bullish logic for credit investments, despite potential constraints from institutional behavior and policy impacts [17][24]

Group 1 - The report indicates that in the first half of 2025, the market saw an increase in government bond yields, while credit bond yields fluctuated, leading to a compression of credit spreads, particularly in lower-rated bonds [2][8][11] - The overall strategy for credit bonds in the second half of 2025 suggests that yields may follow government bonds downward, but supply could increase while demand weakens, posing a risk of widening credit spreads [2][30][35] - The report recommends focusing on city investment bonds with weakening supply, followed by financial bonds, as potential investment opportunities [2][30][39] Group 2 - For city investment bonds, the report highlights opportunities for spread compression in high-quality regional bonds, supported by policies aimed at alleviating credit risks [3][43][54] - In the industrial bond sector, the report suggests monitoring the recovery of spreads following the resolution of risk events related to state-owned enterprise bonds, as well as opportunities arising from debt collection policies [3][58][63] - The financial bond segment is expected to see a decrease in supply pressure for perpetual bonds, particularly due to the consolidation of rural commercial banks, which may present structural opportunities [3][67][76] Group 3 - The report notes that the supply of credit bonds is expected to increase in the second half of 2025, with government bond net financing projected to be lower than the previous year, while industrial bonds may see a rise in supply [30][32][35] - Demand for credit bonds may weaken, leading to a potential widening of credit spreads, as the report anticipates a decrease in the attractiveness of bank deposits compared to bonds [33][35][36] - Historical data suggests that during periods of widening credit spreads, extending duration and focusing on lower-rated bonds have been effective strategies [36][37][39] Group 4 - The report emphasizes that the city investment bond market is under strict regulatory scrutiny, particularly for lower-rated bonds, which may limit their issuance [54][57] - The industrial bond sector is expected to benefit from government policies aimed at supporting state-owned enterprises, particularly in real estate and construction [63][66] - The financial bond market is likely to experience a shift towards stronger credit profiles, especially in regions undergoing consolidation of rural commercial banks [72][76]