Key Points - The report indicates that there is still potential for credit spread compression, particularly in the context of different bond types and their excess spreads compared to similar maturity and rating bonds [1][3][35] - As of January 30, 2026, the excess spreads for 3Y AAA-rated bank subordinated bonds, perpetual bonds, and industrial bonds are 6.1BP, 6.6BP, and 11.0BP, respectively, which are at the 92%, 79%, and 44% percentiles since early 2025 [1][3][35] - The report suggests that the selection of bonds based on value for money ranks as follows: bank subordinated bonds > perpetual bonds > urban investment bonds > industrial bonds [1][35] Credit Strategy Review for January 2026 - The yield of bank subordinated bonds has significantly decreased, and the excess spreads remain high, indicating potential for further compression [3][6] - The report notes that the 3Y AA+ urban investment bond yield decreased by 9BP, with the yield at the end of January 2026 being 1.91% [11] - Factors contributing to the decline in credit bond yields include limited corporate financing demand, stable credit issuance, and a loose funding environment [11][14] Performance of Different Credit Strategies - In January 2026, the performance of various credit strategies ranked as follows: duration extension > barbell strategy > 3Y bullet strategy > short-end sinking [15] - The returns for the duration extension strategy for urban investment bonds, industrial bonds, bank subordinated bonds, and perpetual bonds were 0.65%, 0.85%, 0.76%, and 0.82%, respectively [15][18] - The report highlights that the short-end sinking strategy yielded returns of 0.16%-0.19% across different bond types, although its performance was generally average [17][18] Outlook for February 2026 - The report anticipates that the overall funding environment will remain tight, with a weak recovery in the fundamentals [35] - It is expected that the central bank's operations will lead to a decrease in funding rates, potentially resulting in a further decline in long-term bond yields by 5-10BP in Q1 2026 [35] - The report emphasizes that the credit spread compression trend is likely to continue, with a focus on the performance of various bond types [35]