1. Report Industry Investment Rating No relevant content provided. 2. Core View of the Report Since mid - to late November, long - term bonds, especially ultra - long bonds, have undergone significant adjustments, possibly due to banks' selling under year - end duration indicator constraints. The mismatch between banks' asset and liability durations has intensified, with some state - owned banks' bank book interest rate risk indicators approaching regulatory limits. In 2026, the regulatory standards for bank book interest rate risk are likely to be adjusted. Possible adjustment methods include lowering the interest rate shock amplitude, relaxing regulatory indicator upper limits, and using special treasury bonds to supplement primary capital. It is expected that the probability of lowering the shock amplitude and issuing special treasury bonds to supplement capital next year is relatively high, and the indicator pressure will be alleviated compared to this year [1][2][4]. 3. Summary by Directory 3.1 Bank Book Interest Rate Indicator Regulatory Policy Evolution After the 2008 international financial crisis, the importance of bank account interest rate risk management became prominent. In 2009, the CBRC issued the "Guidelines for the Management of Commercial Bank Account Interest Rate Risk". In 2016, the Basel Committee on Banking Supervision released standards for bank book interest rate risk. In 2017, China comprehensively revised the 2009 guidelines. In July 2024, the Basel Committee revised the bank book interest rate shock scenario, to be officially implemented on January 1, 2026, with the "parallel upward" shock amplitude for interest rates adjusted from 250BP to 225BP [8][9]. 3.2 State - owned Banks' ΔEVE/Net Primary Capital Approaching the Upper Limit Banks divide financial assets into TPL, AC, and OCI accounts. AC and OCI accounts, mainly for allocation, face bank book interest rate risk management indicators. Due to the shortening of liability duration and the lengthening of asset duration, the mismatch between banks' asset and liability durations has intensified. In 2024, the ΔEVE/Net Primary Capital of Agricultural Bank of China (-14.31%), Industrial and Commercial Bank of China (-14.71%), and China Construction Bank (-14.73%) was close to the - 15% regulatory limit [10][19]. 3.3 How to Alleviate Bank Book Interest Rate Risk? - **2025 Risk Calculation**: Calculate the 2025 year - end ΔEVE based on the increment of AC and OCI financial investments and their growth rate; calculate the 2025 year - end estimated value of primary capital based on the cumulative year - on - year growth rate from Q3 2025 to Q3 2024; then calculate the theoretical value of ΔEVE/primary capital for each major bank. It is expected that the indicators of Agricultural Bank, Industrial and Commercial Bank, and China Construction Bank will exceed the 15% regulatory red line, and the indicators of Agricultural Bank, Industrial and Commercial Bank, China Construction Bank, and Bank of China will deteriorate marginally in 2025 [22]. - **2026 Possible Measures**: - **Lowering Interest Rate Shock Amplitude**: Lower the parallel upward shock amplitude of RMB in the IRRBB standard by 25BP from January 1, 2026. Static calculations based on 2025 forecast data show that the regulatory buffer space of △EVE/Net Primary Capital increases by 1.3%, and it can support large - scale banks to undertake 30 - year government bonds worth 649 billion yuan. For 5 - year and 10 - year bonds, the supportable scales are 2.8 trillion yuan and 1.3 trillion yuan respectively [2][23]. - **Relaxing Regulatory Indicator Upper Limits**: Static calculations based on 2025 forecast data show that when the regulatory indicator is raised by 1%, the regulatory buffer space of △EVE/Net Primary Capital can support large - scale banks to undertake 30 - year government bonds worth 484 billion yuan. For 5 - year and 10 - year bonds, the supportable scales are 2.0612 trillion yuan and 968.9 billion yuan respectively. If the regulatory indicator is raised by 2%, the supportable incremental scales for 5 - year, 10 - year, and 30 - year government bonds are 4.1225 trillion yuan, 1.9379 trillion yuan, and 968 billion yuan respectively [3][24][26]. - **Supplementing Primary Capital with Special Treasury Bonds**: This year, 50 billion yuan of special treasury bonds have been issued to support state - owned large - scale banks to supplement capital. If Agricultural Bank and Industrial and Commercial Bank each have 25 billion yuan of primary capital increase next year, based on the △EVE/primary capital regulatory requirement of 15%, the △EVE released by the 50 billion yuan of supplementary primary capital can support large - scale banks to undertake incremental scales of 5 - year, 10 - year, and 30 - year government bonds of 1.0166 trillion yuan, 477.9 billion yuan, and 238.7 billion yuan respectively. It is less likely to raise the regulatory threshold of "ΔEVE/primary capital" in IRRBB, while it is more likely to lower the interest rate shock amplitude and issue additional special treasury bonds to supplement capital. After these measures, the pressure on IRRBB in 2026 is expected to be alleviated compared to this year [3][4][28].

Report Industry Investment Rating No relevant content provided. Core Viewpoints of the Report - Negative carry risk has emerged as a significant challenge in the fixed - income investment field due to the global low - interest - rate environment and monetary policy cycle shifts. Overseas experience shows that addressing negative carry is crucial for institutional profitability, risk resistance, and financial system stability. China's asset management institutions can learn from overseas strategies to manage negative carry risks [10][15]. Summary According to the Table of Contents 1. Negative Carry: Impact in Progress - The cause of negative carry usually stems from asset - liability duration mismatch and interest - rate fluctuations. When the liability - side cost rises due to short - term interest - rate hikes or rigid payment pressure, and the asset - side long - term bond yields are locked or decline, institutions face the risk of return inversion [10]. - Overseas experience indicates that negative carry risks typically occur after a long - term low - interest - rate environment followed by a rapid interest - rate increase. For example, after the Fed's 2022 interest - rate hikes, the US banking industry faced "interest - rate increase + negative carry" pressure. In Japan, after the 2016 negative - interest - rate policy, a "interest - rate decrease + negative carry" situation emerged [10][11]. - China's banks and insurance institutions are also facing challenges of high liability - cost stickiness and low asset returns. They are forced to allocate low - yield bonds due to a shortage of high - quality assets, while liability - side costs adjust slowly [13]. 2. How Do Overseas Asset Management Institutions Break the Deadlock? 2.1 Asset - side: Increase Positive Returns - Japanese insurance institutions hedge negative carry pressure by extending asset duration and increasing ultra - long - term bond allocation, using term premiums to offset short - term return inversions [16]. - US commercial banks, with short - term deposits on the liability side, conduct band - trading by accurately predicting interest - rate cycles. They adjust their bond - asset repricing periods and use interest - rate swaps to hedge risks [21]. 2.2 Liability - side: Cost Control - European insurance institutions implement liability - duration matching strategies by issuing long - term policies or deposits to reduce liability - side interest - rate sensitivity. They lock in low - cost funds during interest - rate declines and adjust duration as interest rates change [22]. - Swiss insurance companies attract low - cost liabilities to form a liquidity buffer, using products like non - guaranteed products to reduce costs [24]. - Overseas asset management institutions use derivatives for duration matching and interest - rate risk hedging. For example, UK banks use structural hedging to improve returns and manage risks, and US insurance companies use interest - rate swaps to hedge interest - rate increase risks [30]. 3. What Strategies Can China Use to Address Negative Carry? - In China, banks face a contradiction between slow - growing deposit business and rigid costs, while asset - side fixed - income assets are highly sensitive to interest - rate fluctuations. The end of the negative carry environment depends on the interest - rate policy cycle [37]. - Strategies for China include dynamic duration adjustment, liability - side innovation and cost control, diversified asset allocation, and re - defining bond asset classifications. These strategies can help Chinese asset management institutions actively manage asset - liability linkages and reduce negative carry risks [38].