1. Report Industry Investment Rating - No information is provided in the given content about the report industry investment rating. 2. Core Viewpoints of the Report - Yield being too high is not a risk, while being too low is. In March, the bond market mainly traded on expectations, and the term premium reached a new high. Long - end yields being high is not a risk as the term spread acts as a natural moat. Short - end yields being low is a risk as they have little ability to withstand fluctuations. The "low - probability" risk in the bond market is the short - end yield increase, with the potential trigger being the supply of certificates of deposit. Short - end yields could rise by 10BP in the short - term, and the long - end cannot withstand the short - end increase. In April, there is no need to rush into long - end trading [1][6][7][8]. 3. Summary by Relevant Catalogs 3.1 Bond Market's "Low - Probability" Risk - **March Bond Market Expectation Trading**: In March, the bond market mainly traded on expectations, and the term premium reached a new high. After the geopolitical conflict, the domestic imported inflation expectation trading heated up. Before the Two Sessions, there was still the after - effect of the February reserve requirement ratio cut expectation trading, and after the Two Sessions, the bond market gave up expectations for monetary policy. The 10 - year yield recovered after rising, and the 30 - year yield remained high after rising. By the end of the month, the 10 - 1 spread was close to 60BP, and the 30 - 10 spread reached 56BP, fully pricing in the risks in the expectation trading [6]. - **Long - End Yield Analysis**: Long - end yields being high is not a risk. The term spread indicates the continuation of the "bear steepening" pattern. The risk of "bear flattening" is excluded because the debt cycle is in the clearing stage and there is no condition for the monetary policy to tighten first. The term spread is a natural moat for the long - end. However, the 30 - year ultra - long bond has risks such as relative supply pressure after the issuance of special treasury bonds, "tight balance" constraints at the bank duration level, and the risk of changing active bonds with a high borrowing ratio [7]. - **Short - End Yield Analysis**: Short - end yields being low is a risk. The short - end trading is crowded, and the yields are too low. Taking certificates of deposit as an anchor, the spread between them and the capital or policy rate is less than 15BP. Assets within 3 years are in an "asset shortage" state with little coupon protection. The only possible trigger for the short - end yield increase is the supply of certificates of deposit, especially from joint - stock banks. The risk is considered "low - probability" but could cause short - end yields to rise by 10BP, which would also affect the long - end [8][9]. - **April Long - End Trading Suggestion**: In April and the second quarter, there is no need to rush into long - end trading. Wait for the release of inflation and real - estate data. Accounts that seized trading opportunities in February don't need to rush into left - side trading. Accounts that didn't gain capital gains in February can be more left - sided, but it's better to choose 7 - 10 - year bonds with the protection of allocation demand [10].

Core Viewpoint - The report from Société Générale's interest rate strategists indicates that the oil shock stemming from the Middle East conflict aligns with their bearish outlook on German government bonds for 2026, maintaining a year-end yield target of 3.25% [1] Group 1: Interest Rate Outlook - The strategists suggest that the peak interest rates may be reached earlier than previously expected [1] - The term premium, which is the additional yield investors seek for holding long-term bonds over short-term ones, is continuing to rise [1] Group 2: Bond Market Dynamics - In the Eurozone government bond market, there should be some support if net selling does not intensify [1] - The direction of the commodity market and interest rate volatility will ultimately determine market trends [1] Group 3: Current Bond Yield Data - The yield on the 10-year German government bond closed at 2.944% on Thursday, having earlier reached a near two-and-a-half-year high of 2.963% during intraday trading [1]

Group 1: Long-term Interest Rates - The primary factor influencing long-term interest rates over the past year has been the term premium[10] - The current level of the term premium is expected to revert to the historical lower bound of 30-40 basis points (BP)[10] - The market is focused on whether the term premium can return to a neutral level of 60-70 BP[10] Group 2: Stock and Earnings Analysis - Stock prices can be decomposed into Price-to-Earnings (PE) ratios and Earnings Per Share (EPS)[15] - The PE ratio is currently at a near ten-year high, raising concerns about potential declines[15] - EPS appears to have reached a bottom, with market attention on its potential recovery[15] Group 3: Price Index Changes - The average year-on-year Producer Price Index (PPI) is projected to be slightly above zero at 0.05%[32] - The Consumer Price Index (CPI) is also expected to be slightly above historical averages at 0.05%[32] - Geopolitical conflicts are anticipated to raise oil prices by an average of 10% per month from March to May, increasing CPI by approximately 0.1% and PPI by about 0.2%[32] Group 4: Demand and Supply Factors - The demand for real estate is supported by a stable population of first-time buyers and an increasing number of improvement-demanding individuals[52] - Infrastructure investment is expected to stabilize, with government policies aimed at maintaining investment levels throughout 2026[61] - The PPI is identified as a major variable affecting corporate profitability, with the PPI-CPI differential reflecting the relationship between corporate earnings and costs[24]

Group 1 - The core signal from the recent nomination of two dovish members to the Bank of Japan's monetary policy committee is that the government under Prime Minister Sanna Takashi prioritizes growth and fiscal stimulus over interest rate hikes and fiscal constraints [2][9] - The market's expectation for the pace of monetary tightening by the Bank of Japan has been significantly lowered, leading to a depreciation of the yen and a steepening of the yield curve for long-term Japanese government bonds [2][5] - The nomination of economists known for their pro-reflation stance has raised concerns about potential further depreciation of the yen and a surge in long-term bond yields, complicating the timing of future interest rate hikes [5][10] Group 2 - The recent increase in long-term Japanese government bond yields, particularly the 40-year bond reaching 3.6%, indicates a significant sell-off in the bond market, which could have spillover effects on global equity and bond markets [1][6] - The ongoing inflation in Japan, which has remained above the Bank of Japan's 2% target for four consecutive years, poses a major economic challenge, leading to public dissatisfaction over rising living costs [6][9] - The potential for a "black Monday" scenario in global markets is heightened by the combination of dovish central bank signals, aggressive fiscal expansion narratives, and unclear financing constraints, which could trigger panic selling across asset classes [8][10]

Core Viewpoint - The article discusses the need for the Federal Reserve to adjust its balance sheet strategy by shifting from long-term to short-term Treasury securities to reduce duration risk and potentially lower policy interest rates [1][19]. Group 1: Current State of the Fed's Balance Sheet - As of early 2026, the Federal Reserve's balance sheet is approximately $6.6 trillion, significantly higher than pre-pandemic levels of $4.4 trillion and $0.9 trillion before the Global Financial Crisis (GFC) [2]. - The balance sheet structure is deemed "distorted" by some analysts, with reserves nearing $3 trillion, accounting for 12% of bank assets [2][16]. - The weighted average maturity (WAM) of the Fed's Treasury holdings is about 9 years, compared to only 3 years before the GFC, indicating a longer duration risk [2][11]. Group 2: Proposed Strategy for Duration Management - The proposed strategy involves the Fed reinvesting maturing securities into short-term Treasury bills (T-bills) instead of similar long-term assets, which could increase T-bill holdings from $289 billion to approximately $3.8 trillion over five years [23]. - This shift would reduce the Fed's portfolio duration from 9 years to about 4 years, aligning more closely with pre-GFC norms [23][24]. Group 3: Coordination with the Treasury - Successful implementation of this strategy requires coordination with the Treasury to avoid market disruptions. If the Treasury increases long-term debt issuance without Fed support, it could lead to a significant supply-demand imbalance in the long-term bond market [25]. - The ideal scenario would involve the Treasury maintaining long-term issuance levels while increasing T-bill issuance to meet the Fed's needs, stabilizing the market [28]. Group 4: Implications for Interest Rates and Market Dynamics - A shorter duration portfolio may lead to an increase in term premiums, necessitating a reduction in policy interest rates to maintain economic stability [29]. - Research indicates that to offset the effects of a shorter duration portfolio, the federal funds rate may need to be lowered by 25 to 85 basis points [29][36].

Core Insights - Foreign investors have been increasingly purchasing larger shares in U.S. Treasury auctions, alleviating concerns about the U.S. Treasury's safe-haven status being compromised and the potential for large deficits driving away foreign capital [1][4]. Group 1: Foreign Investment Trends - In January, foreign and international accounts received approximately 19% of auction allocations, marking the highest level in nearly three years [1]. - This allocation share had previously peaked at nearly 25% in early 2022, before dropping below 10% in November 2024 [1]. - The increase in foreign auction participation is described as "broad-based" by TD Securities analysts [4]. Group 2: Market Sentiment and Behavior - Analysts express skepticism that the narrative of "Sell America" is more of a story than a reality, as foreign institutions have shown a tendency to hold onto their U.S. Treasury positions despite market fluctuations [4]. - Following the announcement of tariffs by former President Trump in April 2025, foreign investors sold $53 billion in Treasuries but subsequently increased their holdings by $354 billion by November [4]. - The rise in foreign auction participation in November and December indicates an increase in term premium, which is the excess return of 10-year Treasuries over shorter-term securities, as a factor attracting investors [4]. Group 3: Investment Choices and Currency Considerations - The lack of alternative investment options may compel investors to set aside their concerns and continue investing in U.S. Treasuries [8]. - A weaker dollar suggests that foreign investors might be opting to hedge against currency risks while still increasing their holdings in dollar-denominated assets [8]. - From a diversification perspective, investors may find limited choices available, reinforcing their commitment to U.S. Treasuries [8].

Group 1 - The core viewpoint of the article highlights that the allocation ratio of foreign buyers in U.S. Treasury auctions has been increasing, alleviating concerns about the loss of the safe-haven status of U.S. Treasuries and the impact of large fiscal deficits on foreign investments [1][4] - According to TD Securities' analysis, in January, the allocation ratio for foreign and international accounts in Treasury auctions reached approximately 19%, marking a three-year high. This ratio had previously peaked at nearly 25% in early 2022 but declined to below 10% by November 2024 [1][4] - The report indicates that the increase in foreign account allocations is broad-based, suggesting that the narrative of a "sell America" trend may be more of a market story than reality [4] Group 2 - Despite a significant sell-off of $53 billion in U.S. Treasuries by foreign investors following tariff announcements in April 2025, they subsequently increased their holdings by $354 billion by November of the same year [4] - The participation of foreign investors in Treasury auctions notably increased in November and December, driven by the expansion of the term premium, which is the additional yield of 10-year Treasuries over shorter-term bonds [4][6] - The upcoming auction of $58 billion in three-year Treasuries and the issuance of 10-year and 30-year bonds may further influence foreign investment behavior, as a lack of alternative assets could compel investors to continue holding U.S. dollar assets [7]

Core Viewpoint - Geopolitical factors are profoundly reshaping the global interest rate curve through a "security" premium, with the rise in long-term rates being a structural change driven by fiscal expansion for national security rather than simple cyclical fluctuations. High inflation-driven fiscal expansion has significantly weakened the traditional safe-haven characteristics of bonds. The macro narrative brought by Trump will continue to dominate asset price fluctuations ahead of the U.S. midterm elections, with RMB-denominated assets already showing "safe haven" attributes [4]. Group 1: Long-term Interest Rates - The synchronized rise in long-term interest rates across major economies is not merely driven by economic cycles but represents a structural shift under geopolitical fragmentation. Concerns over uncontrolled fiscal deficit expansion and tariff conflicts following Trump's "first hundred days" have led markets to reprice long-term inflation and sovereign credit risks [5]. Group 2: Pricing of Term Premium - The term premium is undergoing a paradigm shift, where national security, supply chain restructuring, and technological competition are replacing sovereign credit as the new anchor for long-term bond pricing. The "weaponization" of U.S. Treasuries has exposed the wave of "safety" for reserve assets, while competitive fiscal expansion, re-industrialization, and resource hoarding have completely disrupted the self-regulating supply-demand mechanism [6]. Group 3: Potential Disruption of Narratives - The current steepening of the interest rate curve began with Trump's inauguration on January 20, 2025, but the sustainability of this political momentum faces serious challenges from the midterm elections. If political momentum wanes, the "security premium" logic may weaken, leading to significant volatility in commodity and precious metal prices. However, narrative trading will still dominate the market in the first half of 2026, with caution advised for potential bidirectional fluctuations due to policy adjustments in the second half. In this context, RMB-denominated assets stand out as a "safe haven" due to robust fiscal discipline and stable currency value [7].

Core Viewpoint - Foreign buyers have increased their participation in U.S. medium- to long-term Treasury auctions, alleviating market concerns about the loss of safe-haven status and the potential withdrawal of overseas funds due to large fiscal deficits [1][5]. Group 1: Foreign Participation in Treasury Auctions - In January, foreign and international accounts accounted for approximately 19% of allocations in U.S. Treasury auctions, marking the highest level in nearly three years [1][5]. - This participation rate had previously peaked at nearly 25% in early 2022 but fell to below 10% by November 2024 [1][5]. Group 2: Market Sentiment and Investor Behavior - Analysts from TD Securities suggest that the narrative of a "sell-off of America" is more of a story than reality, as data indicates foreign investors have been increasing their holdings [3][8]. - After a sell-off of $53 billion in U.S. Treasuries following tariff announcements in April 2025, foreign investors subsequently increased their holdings by $354 billion by November [8]. Group 3: Factors Influencing Investment Decisions - The increase in foreign participation in Treasury auctions during November and December indicates that the widening term premium—additional yield offered by 10-year Treasuries compared to shorter-term bonds—has been a driving factor [8]. - The lack of alternative assets may be compelling investors to set aside concerns temporarily, with a weaker dollar suggesting that foreign investors are continuing to accumulate dollar-denominated assets while hedging against currency risks [10].

Group 1: Geopolitical Impact on Interest Rates - Geopolitical factors are reshaping the global yield curve through a "security" premium, with long-term rates rising due to structural changes in fiscal expansion for national security rather than cyclical fluctuations[1] - Major economies' long-term interest rates are rising in unison, driven by structural shifts from geopolitical tensions rather than simple economic cycles, with U.S. fiscal deficit concerns impacting market pricing for long-term inflation and sovereign credit risk[9] - The "safety" premium is being redefined, with national security and supply chain restructuring becoming new anchors for long-term bond pricing, replacing traditional sovereign credit considerations[1] Group 2: Economic Indicators and Trends - From January 20, 2025, to January 20, 2026, long-term bond yields for China, Japan, the U.S., and the Eurozone changed by +41bp, +149bp, +11bp, and +74bp respectively for 30-year bonds, indicating a significant upward trend[9] - The U.S. fiscal deficit has been expanding, with interest payments on federal revenue rising from an average of 15.07% (2015-2019) to 25.04% in 2025, highlighting increasing debt service burdens[20] - The U.S. economy is projected to grow at a stable rate of over 2% in 2025, with the IMF revising growth forecasts upward to 2.4% for 2026[64] Group 3: Risks and Market Dynamics - Potential risks include geopolitical crises escalating beyond expectations and U.S. economic performance weakening, which could lead to a decline in risk appetite[3] - The narrative surrounding U.S. fiscal policy may face challenges during the midterm elections, potentially destabilizing commodity and precious metal prices[2] - The market is currently experiencing a "K" shaped recovery, with disparities in economic performance leading to increased pressures on ordinary citizens, as evidenced by rising loan delinquency rates[62]