1. Report Industry Investment Rating No information about the industry investment rating is provided in the content. 2. Core Viewpoints of the Report - This week (March 16 - March 20), the bond market's interest rate curve became steeper, with the medium - short end being stronger and the long end being weaker and volatile. The spread of short - duration and weak - quality bonds compressed, and the spread of Tier 2 capital bonds slightly converged. The 10Y - 1Y and 30Y - 10Y treasury bond spreads reached 57BP and 56BP respectively, at a high level in recent years [2][10]. - The central bank's downplaying of the interest rate cut expectation restricts the long - end trend market, while the short - end has advanced under the expectation of loose funds and inter - bank self - discipline, but there may be fluctuations later, and the probability of a significant increase is limited. The current state of long - short end segmentation will not last forever, and there are potential breaking points in the market [2][4]. 3. Summary According to the Directory 3.1 Central Bank's Downplaying of Interest Rate Cut Expectation Restricts the Long - End Trend Market - Since January, the long - end interest rate recovery was mainly driven by large - scale allocation funds. The central bank tilted towards stabilizing growth at the beginning of the year, but inflation risks have not been eliminated, and non - bank institutions are hesitant [10]. - After the recent sharp rise in oil prices, the market has started to price in future inflation paths in advance. In both optimistic and pessimistic scenarios, PPI is expected to return to around 0 or turn positive in March, with the high point around June. The high point of CPI year - on - year will appear in May - June, and in the pessimistic scenario, the high point may approach 2.5% [14]. - The central bank has downplayed the expectation of interest rate cuts since March. It emphasizes the balance between various goals and no longer mentions that the alleviation of bank interest margin pressure creates space for interest rate cuts. In the recent meeting, it only mentioned guiding and regulating the interest rate level according to economic and financial situations, which may be related to inflation uncertainty [15][19]. - The economic data from January to February exceeded market expectations, but the data improvement was affected by multiple factors. The overall high growth of the data in January - February relieved the pressure on GDP growth to maintain 4.5% in Q1, which may make the central bank tend to wait and see, resulting in a lack of a long - end trend market [21][23]. 3.2 Short - End Races Ahead under Loose Funds and Inter - bank Self - Discipline Expectations, with Limited Probability of a Significant Increase in the Future - Despite the central bank's downplaying of interest rate cut expectations, the liquidity remains abundant. The current state may be affected by cash return and fiscal fund replenishment. It is estimated that the excess reserve ratio in March is expected to reach 1.4% [25][28]. - The stable DR001 may be related to the central bank's maintenance of stability. Although the central bank has downplayed the interest rate cut expectation, it also maintains a loose liquidity environment to avoid short - term market impacts [29]. - The current short - end interest rate has largely priced in the expectation of loose funds after the quarter - end. The probability of the short - end interest rate center moving further down is relatively limited, and there may be disturbances if the funds do not become looser or fluctuate after the quarter - end [34][36]. 3.3 Potential Breaking Points of the Long - Short End Segmentation State - In the medium - term, the long - short end segmentation state will not last. There are several potential breaking points: fundamental improvement leading to the central bank tightening liquidity and flattening the curve bearishly, but the current risk is relatively limited; supply shocks affecting the domestic economy and overseas demand, with the impact possibly appearing in mid - April; the central bank advancing the reserve requirement ratio cut due to A - share adjustments, which may bring more opportunities for the long - end, with a higher probability of implementation in Q2 [37][40][46]. - In the short - term, the bond market may continue to fluctuate. Before the quarter - end, the state of uncertain inflation paths and loose funds may continue. Some investors may turn to the middle part of the curve. Recently, 5Y and 7Y interest - rate bonds have performed relatively strongly, and 4 - 5Y Tier 2 capital bonds may still benefit in the short - term [47].