Core Viewpoint - The article analyzes the changes in the pricing of the 10-year government bond yield based on the monetary policy interest rate transmission framework, indicating a trend of narrowing the spread between the 10-year government bond yield and the 7-day reverse repurchase rate due to persistent interest rate cut expectations and a compression of long-term bond term premiums [2][41]. Group 1: Long-term Trends - The long-term trend suggests that the spread between the 10-year government bond yield and the 7-day reverse repurchase rate is likely to narrow, primarily due to a "re-anchoring" of the 10-year bond yield and a systematic decline in long-term bond term premiums as economic uncertainty decreases [2][41]. - The narrowing of the spread is influenced by the ongoing expectations of interest rate cuts and a compression of long-term bond term premiums, as the domestic economy transitions to a high-quality development phase with reduced volatility [6][41]. Group 2: Short-term Dynamics - In the short term, the extent of the spread's increase depends on the upward elasticity of the fundamentals, with historical data indicating that a significant widening of the spread requires confirmation of a bottom in the fundamentals and a tightening of narrow liquidity [4][41]. - Current leading indicators in the domestic economy have shown signs of recovery, but their ability to drive economic and inflation growth remains uncertain, as social financing to GDP has rebounded primarily due to low inflation affecting nominal GDP [42][41]. Group 3: Market Expectations - The market's expectation of future interest rate cuts is reflected in the bond market, where the 1-year government bond yield has remained below the 7-day reverse repurchase rate since 2024, indicating a persistent expectation of rate cuts [32][41]. - The compression of term premiums is another underlying reason for the low spread between the 10-year government bond yield and the 7-day reverse repurchase rate, driven by a consensus among market participants regarding weak expectations for income, housing prices, and inflation [37][41]. Group 4: Future Projections - It is projected that the spread between the 10-year government bond yield and the 7-day reverse repurchase rate will not rise significantly in the next 2-3 quarters, with expectations of only a slight increase to 40-50 basis points, and if the 7-day reverse repurchase rate is cut by 10-15 basis points, the 10-year government bond yield may fluctuate between 1.65% and 1.8% [5][46].