1. Report Industry Investment Rating No relevant content provided. 2. Core Views of the Report - The third quarter is a crucial observation window to determine the market direction. If inflation does not rise significantly in the next 2 - 3 months, the risk of rising unemployment increases, and bond market opportunities from September to the fourth quarter improve. If inflation rises significantly in the third quarter, the probability of a wage - inflation spiral increases, and interest rates may remain high or even rise further [3][36]. - The spread of US dollar bonds still has an upward risk, and attention should be paid to the evolution of the US fundamentals. It is recommended to choose sectors with relatively low volatility, such as the brokerage and state - owned enterprise sectors, and pay attention to floating - rate bonds [3]. - The high interest rate spread supports the US dollar index. Although the US dollar index has declined overall in the first half of the year, it may still trade in the range of 95 - 105 in the second half of the year with limited downside space [4][53]. 3. Summary by Directory Market Review: Policy Disturbance, US Treasury Bond Volatility, and Outperformance of Chinese - funded US Dollar Bonds - US asset prices mainly traded around policy in the first half of the year, with the 10Y US Treasury bond yield fluctuating in the range of 4% - 4.7%. From January to March, government spending cuts and trade uncertainties led to a reversal of optimism among US enterprises and residents, pushing down the US Treasury bond yield. In April, policy uncertainties led to the selling of US Treasury bonds. In May, the risk situation improved, but fiscal concerns resurfaced, causing the yield to rise [7][9]. - High - yield bonds outperformed investment - grade and sovereign bonds in terms of investment returns in the first half of the year. In the Sino - US comparison, the performance of investment - grade bonds mainly depends on static coupons, while the performance rhythm of high - yield bonds is affected by policies [12]. - The spread of investment - grade US dollar bonds first rose and then fell, while the spread of high - yield Chinese - funded US dollar bonds generally increased. The spread increase was controllable due to the stable performance of US hard data [16]. Benchmark Interest Rate Outlook: The Third Quarter is a Crucial Observation Window to Determine the Market Direction - The US fundamentals remained stable in the first half of the year, with the average tariff rate expected to increase by about 16%. The inflation pressure on residents' consumption has not yet emerged, and the employment market shows initial signs of pressure but remains generally stable. The reasons for the stable employment market may be the relatively stable corporate profit growth and the tightening of immigration policies [19][31]. - The third quarter is a window period to test whether the US economy moves towards "stagflation" or "inflation". If inflation does not rise significantly in the next 2 - 3 months, the risk of rising unemployment increases, and bond market opportunities improve. If inflation rises significantly, interest rates may remain high. The opportunities for US Treasury bonds in the fourth quarter may be greater than in the third quarter [36][38]. - Attention should be paid to the potential impact of events such as the expiration of higher reciprocal tariff exemptions, the passage of tax reform bills, and the debt ceiling. The potential SLR ratio adjustment or exemption in summer may release banks' bond - allocation potential and bring investment opportunities for the upward movement of Treasury bond swap spreads, but the effect may be limited [38][47]. Exchange Rate Outlook: High Interest Rate Spread Supports the US Dollar Index - The US dollar index has weakened since the beginning of the year due to policy uncertainties, concerns about fiscal sustainability, and the reduction of exchange - rate risk hedging ratios by some foreign investors [50][52]. - The high interest rate spread still supports the US dollar index. In the second half of the year, the US dollar index may trade in the range of 95 - 105 with limited downside space. The eurozone's growth recovery faces obstacles, and Japan's economy may be affected by weak external demand. If there is no further policy disturbance, the previous over - decline of the US dollar may be corrected [53]. - The market sentiment is gradually recovering, as indicated by the upward movement of the US dollar risk - reversal index and the potential support of the US stock market's relative outperformance over European stocks for the US dollar index [66]. US Dollar Bond Strategy: The Spread Still Has an Upward Risk, and Attention Should Be Paid to the Evolution of the US Fundamentals - The spread of US dollar bonds still has an upward risk, and attention should be paid to the evolution of the US fundamentals. It is recommended to appropriately tighten the credit risk exposure in the second half of the year [70]. - After considering the exchange - rate hedging, the domestic - foreign spread of investment - grade US dollar bonds is at a low level [74]. - It is recommended to pay attention to sectors such as brokerage and floating - rate bonds. It is advisable to shrink the credit exposure or choose sectors with relatively low turnover and volatility. Floating - rate bonds have relative value, with shorter durations and potential for spread recovery [75]. - In the short term, there are relatively few opportunities for interest - rate bonds. For credit bonds, the credit spread still has an upward risk, and attention should be paid to the US fundamentals [79].