Core Viewpoint - The Ministry of Finance and the State Taxation Administration announced the resumption of value-added tax (VAT) on interest income from newly issued government bonds, local government bonds, and financial bonds starting from August 8, 2025, while maintaining VAT exemption for bonds issued before this date [1][2]. Group 1: Reasons for Policy Change - The historical mission of tax incentives has been fulfilled due to the significant scale of bond investments in the current "asset shortage" environment, making government bonds and local debts attractive [1]. - The policy aims to alleviate fiscal pressure and increase government revenue, with an estimated short-term revenue of approximately 33.7 billion yuan from the new VAT on bond interest income [2]. Group 2: Impact on Bond Market - The imposition of VAT on new bonds is expected to lead to an increase in issuance rates, creating a potential yield spread of 6-10 basis points between new and old bonds [3]. - The market reaction showed a short-term rise in 10-year government bond yields, followed by a decline, indicating investor preference for existing bonds due to anticipated tax pressures on new issues [3][4]. Group 3: Asset Class Implications - The removal of tax advantages for government bonds may shift investor interest towards equities and loans, although the overall impact on bond attractiveness is expected to be limited due to their low risk and high liquidity [4]. - The potential for a dual pricing mechanism for new and old bonds may emerge, with credit bonds maintaining their tax status, thus enhancing their relative attractiveness [4]. Group 4: Future Considerations - The central bank's policy direction will be crucial, particularly regarding liquidity measures to counterbalance the reduced attractiveness of new bonds [5]. - The ongoing debate about tax incentives for public funds and their potential changes could significantly affect the bond market's supply-demand structure [6]. Group 5: Individual Investor Impact - The impact on individual investors is minimal, as their participation in the bond market is low, and the VAT exemption for small taxpayers further mitigates any potential effects [7].