Summary of Conference Call on Convertible Bonds and Credit Bonds Market Industry Overview - The conference call discusses the convertible bonds and credit bonds market, highlighting the current trends, risks, and investment strategies. Key Points on Convertible Bonds Market - **Supply and Demand Imbalance**: The convertible bond market is experiencing a supply-demand imbalance, leading to a continuous increase in valuations. The total outstanding convertible bonds have decreased by approximately 1 trillion, leaving around 6 trillion in circulation. This has resulted in strong demand and high valuations, with the median price surpassing 130 yuan and the proportion of bonds priced below 100 yuan dropping to below 30% [2][3] - **Market Volatility**: The characteristics of convertible bonds are diminishing, leading to increased volatility in the market. The overall market valuation is currently in a historically high fluctuation range [1][2] - **Investment Strategy**: It is recommended to adopt a defensive strategy in the short term while also considering high-elasticity varieties and focusing on coupon-bearing assets. Caution is advised when pursuing long-term credit bonds [1][6] Key Points on Credit Bonds Market - **Yield Trends**: In October, credit bond yields have declined across the board, with long-term credit bonds seeing increased trading activity. The weighted average transaction duration has risen to approximately 2.5 years, indicating enhanced liquidity [5][6] - **Performance of Financial Leasing Sector**: The financial leasing sector has shown significant performance, with yield spreads narrowing by about 15 basis points [5] - **Investment Outlook**: The overall outlook for the credit bond market remains optimistic, although a slight downward adjustment in rhythm is expected. It is suggested to maintain a cautious approach towards long-term credit bonds while focusing on short to medium-term credit as a foundational strategy [5][6] Risks and Opportunities - **Risks**: The primary risks in the convertible bond market include high valuation levels and potential slow downward adjustments. However, strong demand and equity support mitigate significant downside risks [3] - **Opportunities**: There are opportunities in industrial bonds, particularly in local state-owned enterprises within construction, coal, and steel industries, where yield spreads are relatively thick. Additionally, perpetual bonds present a good cost-performance ratio for medium to long-term investments [3][13] Recommendations for Bond Investment Duration - **Duration Strategy**: It is advised to extend the bond investment duration to around three years, as this is considered a suitable timeframe despite the potential for yield spread compression in the two to three-year range [8] Specific Investment Focus Areas - **Individual Stock Opportunities**: Attention should be given to steep yield curves, private bonds, perpetual bonds, and ETF components, particularly those related to technology innovation bonds, which may have underpriced valuations due to liquidity differences [9][10] - **Regional Investment Opportunities**: Regions such as Hubei, Henan, Shandong, and Tianjin are highlighted for their attractive yield spreads, with specific areas showing spreads exceeding 40 basis points [12] Conclusion on Credit Bond Investment Strategies - **Overall Strategy**: The strategy for credit bond investment should focus on the 3-5 year yield spreads, which still have compression potential. Increased allocation to perpetual bonds is recommended, especially in light of the market's recovery from previous pessimistic interpretations of regulatory changes [16]

Core Insights - The preferred perpetual stock STRD is being overlooked by investors due to its junior security status, which contrasts with the senior instrument STRF that attracts more attention [1][5] Summary by Category Investment Instruments - STRF is a senior security that is prioritized for payouts, trading above par at $109, with an effective yield of 9.1% and a lifetime return of 29% [3] - STRD, as a junior security, offers a higher effective yield of 12.7% but is trading below par at $78, with a lifetime return of -7% [4] - The difference in risk-return profiles between STRF and STRD highlights that STRF provides safer yields while STRD compensates for higher risk with greater potential returns [5] Market Dynamics - A credit spread has emerged between STRF and STRD, driven by their classifications as senior and junior securities, raising questions about investor preferences [5] - Despite concerns about dividend payments on STRD, the company is expected to maintain these payments to protect STRD's price, as failing to do so would be detrimental [6] Company Actions - The company has recently purchased more bitcoin, holding a total of 640,250 BTC, even as its stock price has struggled, down 4% year-to-date [7]

Group 1 - The Federal Reserve has cut rates for the first time this year by 25 basis points, leading to a rise in bond yields and the lowest credit spreads since 1998 [1][2][3] - The market is adjusting to a less aggressive rate-cutting cycle, with the two-year yield reflecting this shift [3][4] - There is a split within the Federal Reserve committee regarding future rate cuts, with some members advocating for one or fewer cuts for the remainder of the year [6][7][8] Group 2 - The consensus among economists suggests that there may be only one more rate cut this year, despite the Fed's recent actions [7][8] - The labor market remains a point of confusion, with expectations of upward revisions to payroll data, indicating a stable economy [10][11][12] - Inflation concerns persist, with the Fed's target of 2% being questioned as historical data suggests higher average inflation rates [14][15][17] Group 3 - The credit market is expected to perform well into the fourth quarter, supported by the Fed's rate cuts and a focus on growth [27][28] - There is a notable shift in credit spreads, with expectations of spreads moving into the 60s, despite the Fed's actions [29] - M&A activity is anticipated to pick up, which could create supply in the credit markets, although refinancing remains the primary activity currently [31][32][36]

Group 1 - The core viewpoint of the articles indicates that the restoration of VAT on bond interest will create a temporary advantage for existing bonds (old bonds) over newly issued bonds (new bonds), leading to significant market fluctuations [1][2] - The yield of 10-year government bonds fell to around 1.68% before rising back above 1.7% in the afternoon, reflecting the market's reaction to the new tax policy [1] - Institutions predict that the yield spread between old and new bonds could reach 5 to 10 basis points (BP), with new bond yields likely increasing more than the decrease in old bond yields [2][3] Group 2 - Different institutions will be affected variably by the tax policy change, with banks facing the highest tax burden at 6.34% for new bonds, while asset management products will face a lower rate of 3.26% [3] - The tax burden on financial institutions may lead to a shift in investment strategies, with public funds potentially gaining a relative tax advantage, encouraging more bank funds to invest in bonds through public funds [3] - The long-term direction of the bond market will still be determined by fundamental factors, despite short-term trading opportunities created by the new tax policy [4]

Financial Data and Key Metrics Changes - For calendar Q1, the company reported a net loss of $0.23 per share and adjusted distributable earnings of $0.26 per share [9] - The overall net interest margin increased by 20 basis points to 5.27, supported by a growing capital allocation to CLOs [9] - The economic return for the quarter was negative 3.2%, with book value per share at $6.08 [10][11] Business Line Data and Key Metrics Changes - The CLO portfolio increased by 46% to $250 million, while capital allocated to CLOs expanded to 81% from 72% at the end of the previous quarter [11] - The agency RMBS holdings decreased slightly to $504 million from $512 million at the end of the previous quarter [11] - The portfolio P&L by strategy showed a negative $0.24 per share from CLOs and a positive $0.08 from agency [10] Market Data and Key Metrics Changes - The market experienced strong performance in January and February, followed by turbulence in March due to fears of tariffs, slowing growth, and persistent inflation [7] - Credit spreads widened significantly in March, impacting CLO mezzanine debt and equity tranches, leading to meaningful price declines [7][8] - Recent tariff de-escalations have led to credit spreads and prices reversing course in May, recovering a significant portion of the declines [8] Company Strategy and Development Direction - The company successfully completed its conversion to a registered closed-end fund and changed its fiscal calendar to begin on April 1 [4][5] - The strategy focuses on increasing the CLO portfolio while maintaining liquidity and flexibility in response to market conditions [22][29] - The company plans to add corporate debt to its liability structure later this year, which should be accretive to net investment income [29] Management's Comments on Operating Environment and Future Outlook - Management noted that while there were mark-to-market losses in calendar Q1, most price declines were driven by credit spread widening rather than realized credit losses [22] - The company is optimistic about deploying capital in a compelling market and believes it is well-positioned to drive strong earnings moving forward [29] - Management expects to be slightly short on dividend coverage in the second quarter but is on track for recovery in the third quarter [56] Other Important Information - The company disposed of all remaining mortgage positions shortly after April 1, which allowed for increased liquidity and buying power [8][25] - As of April 30, approximately 18.8% of the total portfolio, or about $59 million, was in cash and cash equivalents, providing ample dry powder for deployment [27] Q&A Session Summary Question: How does the yield on newly acquired CLOs compare to the previous $250 million? - Management indicated that the weighted average yield varied from slightly wider to potentially hundreds of basis points back, depending on the type of assets purchased [34] Question: Is there still dry powder available for deployment? - Management confirmed that there is still good dry powder available and that cash reserves are maintained to allow for increased portfolio size [37][39] Question: What are the latest thoughts on the ADE trajectory? - Management stated that they might be slightly short on covering the dividend in the second quarter but are on track for recovery in the third quarter [56]