Group 1 - The basis between the 5-year National Development Bonds and the same-term FR007 interest rate swap is 20 basis points (BP), which has increased by 17 BP compared to the end of 2024 [1] - In 2025, the overall basis between cash bonds and swaps is expected to rise, with the 1-year National Development Bonds and FR007 interest rate swap basis at 5 BP, up 31 BP from the end of 2024, and the 5-year basis at 20 BP, up 17 BP [1] - At the beginning of 2025, due to rising funding rates, interest rate swaps lead cash bonds, causing the basis to drop to a low of -20 BP for the 1-year National Development Bonds and 3 BP for the 5-year basis [1] Group 2 - Since February, the rise in the equity market has led to some capital diversion, impacting cash bonds and causing yields to rise, which has gradually expanded the basis between cash bonds and interest rate swaps [1] - In the second quarter, as the cash bond market recovered, yields fell, leading to a narrowing of the basis between cash bonds and interest rate swaps [1] - In the second half of the year, the cash bond market faced multiple disruptions from VAT collection, institutional behavior, and new rate regulations, resulting in a greater increase in yields and a subsequent expansion of the basis [1]

1. Report Industry Investment Rating - The trend rating for treasury bonds is "oscillation" [1] 2. Core View of the Report - Although the new fee rate regulations have been implemented, the negative factors in the bond market are not fully exhausted. The bond market may experience a short - term rally due to the implementation of the new fee rate regulations, but it still faces downward pressure in the future. Factors such as the improvement in economic fundamentals and the long - bullish expectation of the stock market continue to suppress bond performance [2][12][14] 3. Summary by Directory 3.1 One - Week Review and Views - **This Week's Trend Review**: From December 29 to January 4, treasury bond futures declined significantly. On Monday, the market was worried about the increase in supply next year, causing long - term varieties to fall sharply while short - term varieties remained relatively stable. On Tuesday, trading in the bond market was light, with ultra - long varieties strengthening and medium - term curve varieties performing weakly. On Wednesday, the December manufacturing PMI rebounded unexpectedly, leading to a rapid decline in treasury bond futures, which partially recovered in the afternoon. As of December 31, the settlement prices of the main contracts of 2 - year, 5 - year, 10 - year, and 30 - year treasury bond futures were 102.446, 105.730, 107.825, and 111.380 yuan respectively, down 0.100, 0.300, 0.455, and 1.470 yuan from the previous weekend [11] - **Next Week's View**: The new fund fee rate regulations did not exceed market expectations, and market sentiment is expected to recover briefly. However, considering the many potential negative factors recently, the bond market still has downward pressure after a rapid rise. The bond market may rise rapidly due to the implementation of the new fee rate regulations, but it is difficult for the 10Y variety to return to the level in early September, and it will weaken again with the emergence of subsequent negative news [12][15] 3.2 Weekly Observation of Interest - Rate Bonds - **Primary Market**: This week, 9 interest - rate bonds were issued, with a total issuance of 26 billion yuan and a net financing of - 3.2551 billion yuan, down 184.077 billion yuan and 207.397 billion yuan respectively from last week. 9 local government bonds were issued, with a total issuance of 26 billion yuan and a net financing of 1.7449 billion yuan, up 23.963 billion yuan and 20.623 billion yuan respectively from last week. 79 inter - bank certificates of deposit were issued, with a total issuance of 140.67 billion yuan and a net financing of - 154.27 billion yuan, down 418.49 billion yuan and up 168.77 billion yuan respectively from last week [22] - **Secondary Market**: Treasury bond yields showed a differentiated trend. As of December 31, the yields of 2 - year, 5 - year, 10 - year, and 30 - year treasury bonds were 1.37%, 1.63%, 1.85%, and 2.28% respectively, up 3.20, 4.51, 1.29, and 5.20 basis points from the previous weekend. The 10Y - 1Y and 10Y - 5Y spreads narrowed by 4.22bp and 3.22bp to 51.19bp and 21.85bp respectively, while the 30Y - 10Y spread widened by 3.91bp to 42.42bp. The yields of 1 - year, 5 - year, and 10 - year policy - bank bonds were 1.54%, 1.82%, and 2.01% respectively, down 0.91bp, up 3.50bp, and up 3.22bp from the previous weekend [27][28] 3.3 Treasury Bond Futures - **Price, Trading Volume, and Open Interest**: Treasury bond futures declined significantly. As of December 31, the settlement prices of the main contracts of 2 - year, 5 - year, 10 - year, and 30 - year treasury bond futures were 102.446, 105.730, 107.825, and 111.380 yuan respectively, down 0.100, 0.300, 0.455, and 1.470 yuan from the previous weekend. The trading volumes of 2 - year, 5 - year, 10 - year, and 30 - year treasury bond futures this week were 42,269, 78,602, 100,524, and 125,371 lots respectively, up 8,983, 14,284, 21,370, and 4,121 lots from last week. The open interests were 79,025, 165,733, 241,965, and 168,418 lots respectively, down 2,437, 2,635, 11,554, and up 110 lots from last week [36][39] - **Basis and IRR**: The market price fluctuated greatly this week, and the basis of TL also fluctuated significantly. Next week, it is recommended to pay attention to the following cash - and - carry strategies: 1) After the rise of treasury bond futures, lay out short - hedging strategies. 2) The IRR of the TF2603 contract is relatively high, so it is recommended to pay attention to the cash - and - carry strategy [43] - **Inter - delivery and Inter - variety Spreads**: As of December 31, the inter - delivery spreads of the 2603 - 2606 contracts of 2 - year, 5 - year, 10 - year, and 30 - year treasury bond futures were - 0.044, + 0.010, + 0.005, and - 0.210 yuan respectively, up 0.000, down 0.015, up 0.025, and up 0.010 yuan from the previous weekend [48] 3.4 Weekly Observation of the Funding Situation - As of December 31, R007, DR007, SHIBOR overnight, and SHIBOR 1 - week were 2.16%, 1.98%, 1.33%, and 1.96% respectively, up 62.95, 45.84, 6.90, and 50.80 basis points from the previous weekend. The average daily trading volume of inter - bank pledged repurchase this week was 6.04 trillion yuan, 2.44 trillion yuan less than last week, and the overnight proportion was 62.83%, lower than the previous week's level [52][54] 3.5 Weekly Overseas Observation - The US dollar index strengthened slightly, and the yield of 10Y US Treasury bonds rose slightly. As of January 2, the US dollar index rose 0.43% to 98.4594 from the previous weekend; the yield of 10Y US Treasury bonds was 4.19%, up 5 basis points from the previous weekend; the spread between Chinese and US 10Y Treasury bonds was inverted by 232.9 basis points [59] 3.6 Weekly Observation of High - Frequency Inflation Data - This week, industrial product prices showed mixed trends. As of December 31, the Nanhua Industrial Product Index, Metal Index, and Energy and Chemical Index were 3,549.74, 6,902.02, and 1,530.20 points respectively, down 9.20, up 31.67, and down 11.70 points from the previous weekend. Agricultural product prices also showed mixed trends. As of December 31, the prices of pork, 28 key vegetables, and 7 key fruits were 17.59, 5.63, and 7.92 yuan/kg respectively, up 0.16, down 0.17, and down 0.03 yuan/kg from the previous weekend [63] 3.7 Investment Recommendations - It is recommended to pay attention to the strategy of shorting on rallies [64]

Group 1 - The report emphasizes the need to increase allocation to high-elasticity varieties while maintaining a short-duration defensive strategy in the bond market [6][11] - The credit bond market has experienced a new round of declines, with short-term bonds showing stronger stability compared to longer-term bonds, which are under pressure due to regulatory changes and market sentiment [12][11] - The report suggests focusing on medium to short-duration investments, particularly in high-grade credit bonds, as the market seeks certainty and low volatility [12][11] Group 2 - In the corporate perpetual bond sector, the report notes an increase in configuration value but advises caution against potential declines, especially in long-duration products [12][18] - The issuance of corporate perpetual bonds in September was 135 bonds totaling 141.4 billion, reflecting a slight decrease from the previous month, while the repayment scale also decreased [18][19] - The report highlights that the financing costs for AAA and AA+ rated bonds have increased, with rates at 2.34% and 2.57% respectively, indicating a tightening market [18][19] Group 3 - The ABS market is experiencing a slow adjustment in valuation, leading to a convergence in premiums compared to municipal investment bonds, with limited liquidity improvement expected [14][15] - The report recommends prioritizing ABS with a higher safety margin, such as those related to public housing and fee income rights, while cautioning against further exploration in the current environment [14][15] - The issuance of ABS in September reached 267.7 billion, with personal consumption loans and small loans leading the issuance volume [9][40] Group 4 - The report indicates that the secondary market for corporate perpetual bonds has seen a significant increase in yields, particularly in the medium to long-term segments, with credit spreads widening [30][31] - The report notes that the yield on AA-rated 5Y corporate perpetual bonds increased by up to 21 basis points, reflecting a broader trend of rising yields across various sectors [30][31] - The report highlights that the credit spreads for municipal perpetual bonds remained relatively stable, while industrial bonds exhibited greater volatility [32][34]