Group 1 - The report highlights a deepening global credit risk differentiation, with France's sovereign rating downgraded to A+ and increasing default pressure on US corporations, suggesting a focus on extending duration and upgrading ratings in investment strategies [1][6][29] - The global bond market is driven by three main themes: monetary policy outlook, structural changes in sovereign debt, and international financial system reforms [6][8] - The report indicates that emerging market bonds are showing significant differentiation, with major markets enhancing resilience through dollar and local currency issuance, while frontier markets face sustainability pressures [6][8] Group 2 - The report notes that the US Treasury yield curve has shifted to a bull steepening shape, with the 10-year yield dropping to 4.011% and the 2-year yield declining even more significantly [8][9] - European sovereign bond yields have also seen substantial declines, with the UK 10-year yield plummeting by 25.83 basis points and Germany's 10-year yield falling by 14 basis points [9][10] - The credit market is showing a clear differentiation, with investment-grade corporate bonds performing strongly and high-yield bonds under pressure, as evidenced by the G-spread narrowing for investment-grade bonds while widening for high-yield bonds [11][28] Group 3 - The report emphasizes the need for defensive and structural opportunities in current investment strategies, recommending a moderate extension of duration and an overweight in investment-grade bonds [6][11] - The report suggests increasing allocations to emerging market dollar bonds while avoiding frontier market foreign currency debt, highlighting the resilience of major emerging markets [6][11] - The report also points out the narrowing of the offshore RMB bond yield spread, indicating improved liquidity and demand for RMB assets [15][24]

Core Viewpoint - The credit bonds, particularly urban investment bonds, are showing strong performance despite the weak performance of interest rate bonds, with significant opportunities for investment in the 3 to 5-year maturity range [1][2]. Group 1: Credit Bond Performance - Since May, credit bonds have continued to strengthen, with yields declining and credit spreads narrowing, particularly in urban investment bonds [2]. - The yield on urban investment bonds has decreased by 1 to 9 basis points, with credit spreads compressing by 1 to 8 basis points during the week of May 19 to May 23 [2]. - The weighted average yield for 3 to 5-year urban investment bonds is 2.43%, which is 33 basis points higher than that of industrial bonds of the same maturity [2]. Group 2: Supply and Demand Dynamics - The favorable supply and demand environment is a key factor supporting the strong performance of urban investment bonds [4]. - Demand for credit bonds is increasing, with the TKN (total known net) proportion for urban investment bonds reaching 77%, and the proportion of undervalued bonds rising from 74% to 81% [4]. - The net financing scale for urban investment bonds is expected to be negative for three consecutive months, which is historically rare [4]. Group 3: Investment Strategies - Investment institutions are advised to focus on urban investment bonds with yields above 2.3%, particularly in provinces like Shandong, Jiangsu, Sichuan, and others [6][7]. - Specific cities such as Qingdao, Chengdu, and Xi'an have a high scale of urban investment bonds with yields above 2.3%, making them attractive for investment [6]. - The strategy should include a mix of long-term and short-term bonds, with a focus on high-grade credit bonds for a duration of 5 years and urban investment bonds for 2 to 3 years [7].