Report Industry Investment Rating No relevant content provided. Core Viewpoints of the Report - The bond market is gradually recovering, and the repair market is expected to unfold step - by - step. The dumbbell strategy may be more advantageous, and it is recommended to focus on certificates of deposit and long - term interest - rate bonds [4][17]. - Banks have the willingness and ability to allocate bonds. The high cost - performance of the bond market explains banks' buying willingness, and banks' relatively sufficient funds support their continuous bond - allocation ability [1][7]. - Bank foreign exchange settlement does not increase bond - allocation funds but may improve bank indicators and reduce the need for certificate - of - deposit financing [4][16]. Summary by Related Content Bond Market Performance - This week, the bond market continued to recover, with most interest rates declining. The yields of 10 - year and 30 - year treasury bonds dropped by 1.3bps and 1.6bps to 1.83% and 2.29% respectively. The yields of 3 - year and 5 - year secondary capital bonds fell by 2.6bps and 2.2bps to 1.9% and 2.15% respectively. The 1 - year AAA certificate - of - deposit rate dropped by 3.00bps to 1.595%, breaking through the 1.6% mark [1][7]. Banks' Willingness to Allocate Bonds - The high cost - performance of the current bond market can explain banks' buying willingness. The comprehensive income of long - term bonds is higher than that of loans. For example, the average mortgage loan interest rate is around 3.0%, and even considering only 25% tax, the comprehensive income is still lower than the current 2.3% yield of 30 - year treasury bonds. At the same time, as banks' liability costs continue to decline, allocating long - term bonds can cover liability costs through coupon payments [1][7]. Banks' Ability to Allocate Bonds - High - frequency data since the beginning of the year shows that the pressure on banks' liability side may be limited, which supports their continuous bond - allocation ability. Banks have been net repaying certificates of deposit, with a cumulative net repayment of 1.15 trillion yuan since early December last year. The inter - bank pledged repurchase trading volume has remained above 8 trillion yuan, indicating that banks are not short of liabilities [2][10]. Source of Banks' Bond - Allocation Funds - Some people think that the increase in banks' foreign exchange settlement volume has increased the source of funds, but in fact, without the central bank's foreign exchange settlement, banks' own foreign exchange settlement will not increase the source of funds. Currently, most of the foreign exchange settlement is from enterprises or individuals to banks, which will not increase banks' funds supply but may increase their demand for funds [2][3]. - The source of banks' bond - allocation funds at the beginning of the year is mainly due to the relatively stable deposits, with no obvious outflow. As real - estate sales weaken, residents' savings may flow from real estate to deposits, increasing the supply of deposits. In addition, credit and social financing may not be very strong at the beginning of the year, which also increases the demand for bond allocation [4][16].

1. Report Industry Investment Rating No information provided in the given content. 2. Core Views of the Report - The report comprehensively analyzes commercial banks' bond allocation, regulatory frameworks, asset - liability structures, and bond investment behaviors. Low - interest rates may lead to an increase in the proportion of OCI accounts, amplifying large banks' trading behaviors. Investors should pay attention to the "buy short, sell long" seasonal characteristics of large banks' bond investments and trading opportunities. Rural commercial banks' bond investment behaviors also show new features, and investors can make decisions based on their seasonal characteristics and key trading varieties [4][9][10]. 3. Summary According to the Table of Contents 3.1 Commercial Banks' Bond Allocation Overview - As of the end of 2024, commercial banks' bond allocation reached 89.70 trillion yuan, accounting for 50.70% of China's bond market custody balance. They prefer interest - rate bonds, with interest - rate bonds accounting for 82.7% (74.0 trillion yuan), followed by credit bonds (11.3%, 10.2 trillion yuan) and certificates of deposit (6.0%, 5.4 trillion yuan). Since 2024, the growth rate of commercial banks' bond allocation has first declined and then increased, which is highly correlated with the supply rhythm of government bonds [14][16]. 3.2 Bank Main Regulatory Frameworks: Macro - Prudential + Micro - Supervision, Multi - Dimensional and Multi - Level - **Central Bank Macro - Prudential Assessment**: Focuses on "broad credit" and interest - rate pricing. The assessment objects include various banking financial institutions, divided into three categories. It contains seven major indicators, and the assessment results are divided into A, B, and C grades, with different incentives and constraints for each grade [21][24]. - **Financial Regulatory Bureau Micro - Indicator Assessment** - **Capital Measures and Bank Ratings**: Centered on capital adequacy ratio, the 2023 "Commercial Bank Capital Management Measures" guide banks to form an interest - rate bond - based investment structure. Bank ratings have additional requirements for systemically important banks and global systemically important banks [28][29][34]. - **Liquidity Risk Assessment Indicators**: Aim to guide banks to increase stable liabilities and hold high - quality liquid assets. Mainly focus on LCR, NSFR, HQLAAR, and LMR, with different applicable scopes. The assessment pressure mainly lies in the quarter - end compliance pressure of NSFR [46][48]. - **Duration Indicators**: A "hard constraint" for large banks to extend bond investment duration. When the economic value change of state - owned large banks exceeds 15% of their primary capital, regulatory assessment is required [49]. 3.3 Bank Asset - Liability Structure - **Liability Structure** - **Deposit Structure**: Deposits account for about 70% of liabilities. Personal deposits exceed corporate deposits, and non - bank inter - bank deposits account for a relatively stable proportion. The weighted deposit term has been lengthening. Since 2024, large banks' dependence on inter - bank liabilities has increased, and the cost of liabilities has been declining rapidly [55][57][70]. - **Inter - bank Liabilities**: Since 2024, high - interest deposit - soliciting behaviors have been prohibited, and large banks' inter - bank liability ratio has increased to around 15%. After the optimization of non - bank inter - bank current deposit pricing in late 2024, large banks rely more on inter - bank certificates of deposit to supplement liabilities [63][65]. - **Asset Structure** - **Loan Structure**: Loans are the main asset, but the growth rate of household and corporate loans has been declining since 2023, and the loan term has been lengthening. The loan term has shown a trend of "first lengthening, then shortening, and then lengthening" since 2015 [73][77][84]. - **Inter - bank Assets**: The proportion of inter - bank assets has been declining, and the term has been lengthening since 2022. Among them, the proportion of lending funds has remained stable, while the proportions of placed - with - banks and reverse - repurchase assets have declined [87][91]. 3.4 Bank Bond Investment Behaviors - **Bond Allocation Varieties**: Mainly interest - rate bonds, with interest - rate bonds > certificates of deposit > credit bonds in terms of EVA comparison [4]. - **Financial Investment Account Structure**: The OCI account is both offensive and defensive and is more favored by banks in the low - interest rate stage. State - owned banks in the OCI account mainly trade government bonds, while small and medium - sized banks conduct credit down - grading. In the AC account, government bonds dominate. The TPL account has the strongest trading attribute, with a relatively high proportion of outsourced funds [4]. - **Large Banks' High - Frequency Duration of Holdings**: Since 2024, the duration pressure has gradually increased, and the characteristic of "buying short and selling long" at the end of the quarter has been strengthened. In 2025, the duration of large banks has continued to lengthen, and the duration pressure may ease after the peak of government bond issuance [4]. 3.5 New Developments: New Features of Large and Small Banks' Investment Behaviors - **Large Banks** - **Buying Bonds**: Driven by the central bank's bond - buying, large banks "buy short" and control the short - end pricing. Constrained by duration indicators, the "buy short, sell long" characteristic is strengthened. - **Selling Bonds**: To meet profit requirements, they sell old bonds to realize floating profits. Facing liquidity pressure, they reduce lending, redeem funds, and then increase bond sales [4]. - **Small Banks**: In 2025, "small banks' bond - buying" has returned, with a more flexible investment style. Rural commercial banks attach importance to trading in bond investment, with an overall increase in turnover rate. They have pricing power over certain bonds, and their bond - buying peaks usually occur in specific periods. Attention should be paid to the leading signals of rural commercial banks' early - bird actions at the end of the year [7].