Group 1: Report Industry Investment Rating - Not provided in the content Group 2: Core Viewpoints of the Report - In March 2026, the manufacturing PMI returned to the expansion range, with the production and demand sides both improving. The non - manufacturing and comprehensive PMIs also returned to the expansion range [2][3] - The improvement in demand on the market's demand side was stronger than that on the supply side, but the differentiation between domestic and foreign demand may continue. Domestic demand in the market may remain insufficient in the short term, and policy support is needed to boost demand [4] - There are positive signals in prices, but the gap between purchase prices and ex - factory prices has widened, which may compress corporate profit margins [5] - The PMIs of the construction and service industries have both increased, and the service industry PMI has returned to the expansion range. The construction industry remains confident in its future development [5] - The target range for the 10 - year treasury bond is expected to be 2 - 3%, with a central value of 2.5% [5] Group 3: Summary by Relevant Catalogs 3.1 PMI Data in March - The manufacturing PMI in March was 50.4%, a 1.4 - percentage - point increase from the previous value, higher than the market expectation. The non - manufacturing PMI was 50.1%, a 0.6 - percentage - point increase, and the comprehensive PMI was 50.5%, a 1.0 - percentage - point increase [2][3] - After the Spring Festival, as enterprises resumed work and production, the production index increased by 1.8 percentage points, the new order index increased by 3.0 percentage points, and the new export order index increased by 4.1 percentage points. The production and operation activity expectation index was 53.4%, a 0.2 - percentage - point increase [4] 3.2 Price Situation - The purchase price of major raw materials increased by 9.1 percentage points to 63.9%, and the ex - factory price increased by 4.8 percentage points to 55.4%. The ex - factory price index has remained in the expansion range for three consecutive months [5] 3.3 Industry Situation - The construction industry PMI was 49.3%, a 1.1 - percentage - point increase from the previous value, and the service industry PMI was 50.2%, a 0.5 - percentage - point increase. The business activity expectation index of the construction industry was 50.5%, a 0.4 - percentage - point decrease but still in the expansion range [5] 3.4 Bond Market Viewpoint - The target range for the 10 - year treasury bond is expected to be 2 - 3%, with a central value of 2.5%. The economic recovery is accelerating, and factors such as inflation, monetary policy, and real estate need to be considered [5]

1. Report Industry Investment Rating There is no information provided regarding the report industry investment rating in the given content. 2. Core Viewpoints of the Report - The Spring Festival holiday led to a seasonal decline in PMI in February 2026. The manufacturing PMI decreased by 0.3 pct month - on - month to 49.0%, lower than market expectations. The non - manufacturing PMI increased by 0.1 pct to 49.5%, and the composite PMI decreased by 0.3 pct to 49.5% [3][4]. - In the short term, the lack of domestic demand in the market may continue. The new order indices of both manufacturing and non - manufacturing are in the contraction range, and demand improvement requires policy support. However, there are positive signals in prices, and the possibility of "inflation normalization" should be continuously monitored [5]. - The construction and service industries' PMIs showed a differentiated trend due to the Spring Festival. The construction PMI decreased by 0.6 pct, while the service PMI increased by 0.2 pct. The construction industry's confidence in future development has recovered [5]. - The target range for the 10 - year Treasury bond is expected to be 2 - 3%, with a central value of around 2.5%. Factors such as economic fundamentals, monetary policy, inflation, and real estate all influence the bond market [6]. 3. Summary by Relevant Catalogs 2.1 2026 February PMI Data Analysis - Manufacturing PMI: Affected by the Spring Festival, the manufacturing PMI was 49.0% in February, a 0.3 pct month - on - month decline, remaining below the boom - bust line. The median decline in the manufacturing PMI during the Spring Festival month from 2017 to now is 0.3 pct. The production, new order, and new export order indices all decreased, but the production and operation activity expectation index increased by 0.6 pct to 53.2%, indicating that manufacturing enterprises' confidence in the subsequent market has recovered [4]. - Domestic demand: The new order index of the manufacturing industry was 48.6%, a 0.6 pct month - on - month decline, and the non - manufacturing new order index was 45.2%, a 0.9 pct month - on - month decline, remaining in the contraction range for 34 consecutive months. Short - term domestic demand is insufficient, and demand improvement requires policy support [5]. - Prices: The main raw material purchase price index and the ex - factory price index were 54.8% and 50.6% respectively. The ex - factory price index has been in the expansion range for two consecutive months, indicating an improvement in the overall price level of the manufacturing market [5]. - Construction and service industries: The construction PMI was 48.2%, a 0.6 pct decline from the previous value, and the service PMI was 49.7%, a 0.2 pct increase from the previous value. The business volume of industries related to residents' travel and consumption during the Spring Festival increased rapidly, driving the service PMI to rise. The construction industry's business activity expectation index increased by 1.1 pct to 50.9%, returning to the expansion range [5]. 2.2 Bond Market Viewpoints - The target range for the 10 - year Treasury bond is expected to be 2 - 3%, with a central value of around 2.5%. The economic recovery is faster than expected, and the beginning of 2026 may see loose credit and fiscal policies, accelerating the cycle recovery. If there is a loose monetary policy, bond yields may decline briefly and then rise. Inflation is expected to pick up, and the possibility of a continuous positive PPI month - on - month increase should be focused on. If inflation rises continuously, there is a possibility of tightened funds, and short - term bond yields may also rise. Real estate may be a lagging indicator, and it may bottom out after the recovery of various economic indicators and the rise of the stock market [6].

Report Overview - The report is a commentary on the January 2026 PMI data by the fixed - income research team [2] - The analysts are Chen Xi and the contact person is Wang Shuaizhong [3] Report Industry Investment Rating - Not provided in the report Core Viewpoints - The economic repair falling short of expectations is refuted, and the economy is expected to pick up in the cycle. The target range for the 10 - year Treasury bond is 2 - 3%, with a central value of around 2.5% [7][8] Summary by Related Content PMI Data Overview - In January 2026, the manufacturing PMI was 49.3% (previous value 50.1%), down 0.8 pct month - on - month; the non - manufacturing PMI was 49.4% (50.2%), down 0.8 pct month - on - month; the composite PMI was 49.8% (50.7%), down 0.9 pct month - on - month [4] Reasons for the Decline in January PMI - The manufacturing PMI decline was due to some industries entering the off - season and overall market demand being insufficient. The Spring Festival holiday and supply - demand contradictions might have caused the unexpected decline. Also, a possible correction after the unexpected growth in December should be considered [5] - In the short term, the lack of domestic market demand may continue, as both the manufacturing and non - manufacturing new order indices are in the contraction range [5] Positive Signals in Prices - The main raw material purchase price index and ex - factory price index increased by 3.0 pct and 1.7 pct respectively month - on - month. The ex - factory price index rose to the expansion range for the first time in nearly 20 months, indicating an improvement in the overall price level of the manufacturing market [6] Construction Industry Outlook - The construction industry business activity expectation index dropped to 49.8%, below the critical level. This shows that construction enterprises are cautious about the industry's development, and the Spring Festival holiday has weakened business activities. Attention should be paid to data such as the direction of real estate listing and transaction volumes [6] Structural Highlights in the Data - The view that the economic repair falls short of expectations is often refuted by policy support in history. After repeated refutations, the market will gradually become optimistic [7] Bond Market Views - Fundamental aspect: The refutation of the view that the economic repair falls short of expectations, combined with possible broad credit and broad fiscal policies at the beginning of 2026, will accelerate the cycle recovery [8] - Broad - money aspect: If there are broad - money policies (such as reserve requirement ratio cuts, interest rate cuts, bond purchases), it will be a chance to reduce holdings, similar to 2025 [8] - Inflation aspect: Pay attention to whether the PPI month - on - month can remain positive [8] - Capital interest rate aspect: If inflation rises month - on - month continuously, there is a possibility of capital tightening, and the yield of short - term bonds will rise [8] - Real estate aspect: Real estate is not used as a means to stabilize growth this time. Similar to the situation in the US after 2008, real estate is a lagging indicator and may bottom out after the recovery of various economic indicators and the rise of the stock market [8] - Bond aspect: The target range for the 10 - year Treasury bond is 2 - 3%, with a central value of around 2.5% [8]

Report Information - Report Date: December 11, 2025 [1] - Report Team: Fixed Income Research Team [2] - Analysts: Chen Xi, Wang Shuaizhong [3] Report Industry Investment Rating - Not provided in the document Core Viewpoints - The judgment that "inflation is difficult to maintain an upward trend" has certain risks. If inflation continues to rebound in 2026, bond yields will also rise. It is necessary to pay attention to the possibility of rising inflation data and the rebound of bond yields [6]. - In the context of economic expectation correction, bond yields are expected to rise trend - wise. In the second half of 2025, the economic growth rate may not decline significantly; structural problems such as prices are expected to improve trend - wise; the allocation of stocks and bonds will continue to switch, and bond yields are expected to continue to rise [8]. Summary by Relevant Catalogs 2025 November Price Data - CPI: In November 2025, CPI decreased by 0.1% month - on - month (previous value was +0.2%) and increased by 0.7% year - on - year (+0.2%). Core CPI decreased by 0.1% month - on - month (+0.2%) and increased by 1.2% year - on - year (+1.2%) [3]. - PPI: In November 2025, PPI increased by 0.1% month - on - month (+0.1%) and decreased by 2.2% year - on - year (-2.1%) [3]. Factors Affecting Price Data - CPI year - on - year increase: The year - on - year increase in CPI was mainly driven by the change of food prices from decline to rise, and the impact of rising gold prices continued. Vegetable prices increased counter - seasonally, with fresh vegetable prices rising by 14.5% in November, affecting CPI to rise by about 0.31 pct. Gold prices have been rising since November, and due to the decline in gold prices from November to December 2024, the year - on - year gold price remained high, continuously driving the year - on - year increase in CPI. However, pork prices are still at a historical low, with a significant negative drag. In November, pork prices decreased by 15.0% year - on - year, affecting CPI to decrease by about 0.21 pct. As the base begins to decline, the drag of pork prices on CPI may gradually decrease. The situation of eggs, also a cheap protein, is similar. In addition, attention should be paid to the price changes of high - price proteins, such as beef, whose CPI year - on - year in November reached 6.2% [4]. - CPI month - on - month decline: The month - on - month decline of CPI was mainly affected by the decrease in service prices. After the Mid - Autumn Festival and National Day, travel decreased seasonally, and the combined decrease in hotel accommodation, air tickets, travel agency fees, and vehicle rental fees affected CPI to decrease by about 0.13 pct month - on - month [5]. - PPI month - on - month increase: PPI increased by 0.1% month - on - month, the same as in October. Since November 2024, PPI month - on - month has been negative or 0%. The improvement of supply - demand relationship and the impact of imported factors promoted the first positive month - on - month PPI in October 2025, and the upward trend continued in November, mainly due to the seasonal increase in the demand for coal and gas for winter heating, which pushed up prices. The year - on - year decrease in PPI was 2.2%, and the decline increased by 0.1 pct compared with October, mainly affected by the higher base in the same period of 2024 [5]. Market Conditions - On December 10, the long - term yield fluctuated downward, with funds being the main buyers of bonds. The Fed's 25bp interest rate cut met market expectations. Attention should be paid to the situation of the Central Economic Work Conference that may be held this week or in the near future [7].

Group 1: Political and Economic Context - The new leader of Japan's ruling Liberal Democratic Party, Sanae Takaichi, supports fiscal stimulus and loose monetary policy, which is expected to benefit the Japanese stock market and pose a downside risk to the yen [1] - Following a period of uncertainty, Takaichi is likely to become Japan's first female Prime Minister, which has reignited market enthusiasm for the "Takaichi trade," leading to a significant rise in the Nikkei 225 index by 3.37% [1] - Despite political changes, the framework supporting Japan's economic growth remains solid, and the country is unlikely to revert to deflation [2] Group 2: Inflation and Economic Growth - Japan is transitioning from a deflationary environment to a moderate inflation scenario, with core inflation expected to exceed 3% by early 2025 and decline to around 2% by the end of next year [2] - The shift towards inflation is increasingly driven by wage growth and coordinated policies between the government and the central bank, rather than solely by rising costs [2][3] Group 3: Corporate Governance and Shareholder Returns - Corporate governance reforms are reshaping Japanese companies' capital allocation and shareholder return attitudes, with a significant increase in share buybacks projected for the 2024 fiscal year, up nearly 90% year-on-year [6] - Japanese companies are increasingly focusing on improving capital efficiency and enhancing communication with investors, leading to a structural growth theme in the stock market [6][7] - The average return on equity for Japanese companies is expected to rise from 6%-8% in the 2000s to 10% by the 2026 fiscal year and potentially 11% by the 2028 fiscal year [7] Group 4: Sector-Specific Opportunities - The banking sector is benefiting from a favorable environment characterized by strong net interest margins and low borrowing costs, leading to improved profitability and return on equity [8] - The construction industry is also showing promising investment prospects, with contractors focusing on high-margin projects and improving profit margins due to a tight labor market [8] - Digital transformation remains a key structural growth theme, with Japanese companies accelerating automation to address labor challenges posed by an aging population [9]