Core Viewpoint - China's holdings of U.S. Treasury bonds have been declining significantly, with a notable reduction of $53.7 billion from March to July this year, reaching a low of $730.7 billion in July, the lowest since the end of 2018 [1] Group 1: Reasons for Reducing U.S. Treasury Holdings - The "safety myth" of the U.S. dollar is weakening, as countries are concerned about the potential freezing of their dollar assets following the U.S. actions against Russia [1] - Continuous depreciation of the dollar and fluctuating U.S. Treasury yields allow China to manage its foreign exchange reserves more flexibly, supporting currency stability [1] - The trend of financial decoupling between China and the U.S. is accelerating, with U.S. Treasury bonds shifting from a cooperative asset to a bargaining chip in the geopolitical arena [1] Group 2: Strategic Asset Diversification - China's reduction of U.S. Treasury holdings is not merely a defensive move but also a proactive adjustment of its global asset structure [1] - There is a growing preference for diversifying into assets such as gold, euros, yen, and emerging market assets, which helps in risk dispersion and gaining more leverage in the global financial system [1]

Core Viewpoint - The financial competition between China and the United States has intensified, with both countries resorting to issuing government bonds to bolster their economies amid rising debt levels and inflation concerns [1][5]. Group 1: U.S. Debt Issuance - The U.S. government has been actively issuing bonds as a key method to raise funds, with a notable shift towards auctioning long-term bonds to counteract declining investor confidence in the economy [2][4]. - The Federal Reserve's prolonged high-interest rate policy has led to skepticism regarding the U.S. economic outlook, resulting in a growing preference for short-term bonds among investors [4][5]. - As of now, the total U.S. government debt has reached approximately $34.7 trillion, leading to an estimated per capita debt of around 750,000 RMB for the American population [9]. Group 2: China's Debt Issuance - In May, China's debt market saw the issuance of approximately 68,624.9 billion RMB in various debt instruments, including government bonds, local government bonds, and corporate bonds, aimed at boosting domestic economic confidence [6][12]. - The Chinese government has been more restrained in its debt issuance compared to the U.S., with a per capita debt estimate of about 20,000 RMB, significantly lower than that of the U.S. [9][11]. - The funds raised through China's debt issuance are primarily allocated to domestic infrastructure and development projects, contrasting with the U.S. approach of funding military and financial markets [8][11].

Group 1 - Eurozone bond yields collectively increased on October 6, with the UK 10-year government bond yield rising by 4.7 basis points to 4.735% [1] - The French 10-year government bond yield rose by 5.9 basis points to 3.566% [1] - The Italian 10-year government bond yield increased by 2.9 basis points to 3.538% [1] - The Spanish 10-year government bond yield rose by 2.5 basis points to 3.253% [1]

Group 1 - Fixed-income investors are monitoring Japan closely due to record-high yields on longer-dated bonds following significant political changes [1] - The ruling Liberal Democratic Party has appointed Sanae Takaichi as its new leader, potentially making her the first female prime minister of Japan [1] Group 2 - Takaichi is known for her growth-oriented policies, advocating for looser monetary policy, increased fiscal stimulus, and extensive structural reforms [2] - Concerns have been raised regarding Japan's debt sustainability due to Takaichi's proposed economic strategies [2]

Core Viewpoint - The resignation of French Prime Minister Leclerc has intensified the political crisis in France, leading to market volatility and concerns over the government's ability to address pressing issues [1][8]. Group 1: Political Context - Leclerc's resignation comes less than a month after his appointment, marking him as the shortest-serving Prime Minister since the establishment of the Fifth Republic in 1958 [1]. - The French political landscape has been paralyzed since the 2024 elections failed to produce a party with an absolute majority, complicating governance [1][4]. - Leclerc's cabinet appointments were criticized for lacking significant changes, reflecting a continuation of Macron's pro-business stance, which has drawn ire from both left and right political factions [3][4]. Group 2: Economic Impact - Following Leclerc's resignation, the CAC40 index fell by 1.5%, and the euro depreciated by 0.66% against the dollar, indicating market instability [1]. - The yield on 30-year French government bonds surged to 4.441%, the highest in a month, before slightly retreating, highlighting investor concerns [1]. - The spread between French and German government bond yields reached 0.88 percentage points, nearing the highest level since the eurozone debt crisis, signaling heightened market anxiety [7]. Group 3: Social Unrest - France is experiencing widespread public discontent, with significant protests against government austerity measures, exacerbated by high inflation affecting lower-income groups [6]. - The political deadlock has led to calls for reform from various political leaders, with threats of no-confidence votes if changes are not made [4][6]. Group 4: Future Outlook - Analysts suggest that Macron may have limited options, potentially leading to the dissolution of the National Assembly or triggering new presidential elections, with the former being more likely [7]. - The ongoing political uncertainty is causing investors to adopt a cautious approach, complicating the investment landscape in Europe [7].

Core Viewpoint - The potential return of "Abenomics" is being priced into the Japanese financial markets following the election of Sanae Takaichi, a protégé of the late Prime Minister Shinzo Abe, as the new leader of the ruling party [1][12]. Market Reactions - The Nikkei 225 index surged over 4.7%, marking the largest single-day gain in months, while the Topix index rose by 3% [2]. - The Japanese yen weakened significantly against the US dollar by 1.9%, reaching the critical level of 150, and the yen also hit a historical low against the euro [4]. Bond Market Dynamics - The bond market experienced volatility, with long-term interest rates rising due to concerns over future fiscal expansion, as the yield on 40-year Japanese government bonds surged by 15 basis points to 3.54% [7]. Investor Sentiment - Investors are actively engaging in the "Takaichi trade," anticipating that Takaichi's policies will lead to fiscal expansion and a rightward political shift, which may further weaken the yen and boost the stock market [10]. - Analysts predict that Takaichi's victory could lead to a weaker yen and a steeper yield curve for Japanese government bonds [10]. Economic Policy Outlook - Takaichi's economic policy proposals are heavily influenced by "Abenomics," focusing on large-scale fiscal stimulus and ultra-loose monetary policy [12]. - She has committed to addressing inflation through measures such as increasing subsidies to local governments and potentially lowering consumption tax [12]. - Takaichi advocates for close coordination between the government and the Bank of Japan to achieve demand-driven economic growth [13]. Market Expectations - The market is preparing for potential fiscal expansion, with Takaichi's election seen as a surprise for investors who expected a more fiscally conservative candidate [15]. - A strategist from VanEck Australia noted that this could be a positive surprise for the stock market [16]. - However, there are concerns that increased fiscal spending may lead to a higher debt burden and potential bond market sell-offs if not managed with appropriate safeguards [19].

Core Viewpoint - The election of Sanae Takaichi as Japan's first female Prime Minister is expected to bring significant changes to the economic landscape, with a potential return to "Abenomics" and a focus on inflation management [5][6]. Market Reactions - The Nikkei 225 index surged over 4%, surpassing the 47,800 mark, reaching a historical high, while the Tokyo Stock Exchange index rose approximately 3%, breaking the 3,220 points barrier [1]. - The Japanese yen is under significant pressure, with the USD/JPY exchange rate exceeding 150 [2]. Economic Policies - Takaichi's administration is anticipated to prioritize inflation issues, potentially increasing subsidies to local governments and considering a reduction in consumption tax [6][7]. - She has emphasized the need for close coordination between the government and the Bank of Japan (BOJ) regarding economic policies, criticizing the BOJ's interest rate hikes as "foolish" [8]. Market Expectations - Takaichi's stance has reinforced market expectations that the BOJ will maintain its accommodative monetary policy, leading investors to reassess their strategies regarding interest rate hikes [9]. - Barclays economists predict a decreased likelihood of the BOJ raising interest rates within 2025, suggesting that Takaichi's dovish tone may strengthen in the future [11][12]. Financial Market Dynamics - The Japanese financial market is entering a phase of rapid repricing, with expectations of a positive market response to Takaichi's fiscal policies [10][13]. - Analysts believe that her proactive fiscal stance could boost market confidence, leading to a rotation towards growth stocks in the domestic market [13].

1. Report Industry Investment Rating No relevant content provided. 2. Core Views of the Report - In the fourth quarter, the cost - effectiveness of the coupon strategy is further enhanced against the backdrop of high uncertainty in the bond market direction. The 1 - 3 - year weak - qualification urban investment sinking strategy is recommended, and the yields of 1 - 2 - year AA(2), 2 - 3 - year AA, and AA(2) urban investment bonds are between 2.09% - 2.32%, with a large balance of outstanding bonds. Second, the super - decline feature of secondary perpetual (Er Yong) bonds is obvious, and the yields of 3 - year large - bank capital bonds and 2 - year AA perpetual bonds are between 2.0% - 2.07%, having fallen to a level with coupon value. The 4 - 5 - year large - bank capital bonds have a large decline in this round of adjustment, and the current yields are all above 2.1%, which are high - quality coupon assets for accounts with stable liability ends. For ultra - long - term bonds, although the cost - effectiveness of coupons continues to increase after adjustment, the liquidity has not seen marginal improvement, and it is still only recommended for allocation - type institutions to consider [3][35]. 3. Summary by Relevant Catalog Current Bond Market Situation - Last week, the bearish force in the bond market remained strong, but with the bond - buying by large banks and the central bank's liquidity support, interest rates generally stabilized, while the decline of credit bonds was relatively high, especially for Er Yong bonds and ultra - long - term credit bonds, showing an "over - decline" trend. From September 22 to September 26, 2025, the yields of 1Y, 2Y, 3Y, 4Y, 5Y treasury bonds decreased by 0.7BP, increased by 2.7BP, 2.8BP, 1.8BP, 0.5BP respectively, while the yields of AAA medium - term notes with the same maturities increased by 5.3BP, 6.5BP, 6.8BP, 9.0BP, 9.7BP respectively [1][10]. - The performance of ultra - long - term credit bonds continued to weaken, with the decline exceeding that of the same - maturity interest - rate bonds. The yields of 10Y AAA/AA + medium - term notes increased by 11.32BP and 10.32BP respectively, and the yields of 10Y AAA/AA + urban investment bonds increased by 11.90BP and 8.90BP respectively. The yield of 10Y AAA - bank secondary capital bonds increased by 16.19BP, while the yield of 10Y treasury bonds recovered by 0.21BP [1][12][13]. - The "volatility amplifier" feature of Er Yong bonds reappeared, with the decline of each maturity exceeding that of ordinary credit bonds. The yields of 1 - 5 - year, 7 - year, and 10 - year AAA - bank secondary capital bonds increased by 5.15BP, 8.94BP, 11.60BP, 12.29BP, 17.93BP, 18.31BP, 16.19BP respectively. The part of the curve above 2 - year is still 30BP - 63BP away from the lowest yield point since 2025, and the yields of maturities above 3 - year have exceeded the levels of the bear - flattening period in the first quarter [2][17]. Analysis of Trading Behavior - In terms of active trading, the bearish force of Er Yong bonds was strong overall, with the selling force of trading desks stronger than the buying force of allocation desks. From September 22 to September 26, the proportion of low - valuation transactions of Er Yong bonds was 92.50%, 0.00%, 0.00%, 10.00%, 100.00% respectively. Last week, trading desks represented by public funds strongly sold Er Yong bonds and only had net purchases of short - term credit products. At the same time, allocation desks such as wealth management and insurance institutions bought oversold Er Yong bonds at high prices, but the buying force was weaker than the selling force of public funds [2][19][20]. - The selling market of ultra - long - term credit bonds continued to strengthen throughout the week. From September 22 to September 26, the proportion of discount transactions of ultra - long - term credit bonds was 65.00%, 72.50%, 95.00%, 100.00%, 75.00% respectively. The discount range was not low, and about 25.5% of the discount transactions had a range of more than 4BP, indicating a strong selling willingness in the market [22]. Comparison of the Two Rounds of Bond Market Adjustments in 2025 - The bond market adjustment in the first quarter was mainly driven by the unexpected tightening of the capital market, resulting in weaker performance of the short - and medium - term credit bonds. The yields of 1 - 5 - year AAA urban investment bonds increased by more than 40bp, while the yields of long - term bonds increased by less than 35bp [26][29]. - The bond market adjustment since mid - July in the third quarter was mainly due to the strong performance of the commodity and equity markets, which increased institutional risk appetite. Institutions were very cautious about duration, and short - duration bonds had strong anti - decline properties. From July 18 to September 29, the yield increase of 1 - year urban investment bonds was within 15bp, while the yields of AAA and AA + urban investment bonds with maturities of 7 - year and above increased by more than 40bp [26][32].

Core Viewpoint - The article discusses the contrasting trends in foreign investment in U.S. and Chinese bonds, highlighting a significant sell-off of Chinese bonds by foreign investors while U.S. Treasury bonds are experiencing increased demand due to their perceived safety and attractive yields [1][3]. Group 1: U.S. Treasury Bonds - U.S. Treasury bond prices are rising, with foreign holdings reaching a record $9.159 trillion in July 2025 [3]. - The Federal Reserve's recent interest rate cut to 4.00%-4.25% has made U.S. bonds more attractive, leading to increased investments from institutions [6]. - Major foreign holders like Japan and the UK continue to increase their U.S. bond holdings, with Japan adding $38 billion in July [6]. Group 2: Chinese Bonds - In July, foreign investors sold off 303.9 billion yuan of Chinese bonds, which is only about 1% of the total market size of over 25 trillion yuan [8]. - The primary reason for the sell-off is the narrowing arbitrage opportunities, as the yield differential between U.S. and Chinese bonds has diminished [10]. - Despite the sell-off, foreign capital is still flowing into China, with 87% of the $44.8 billion that entered emerging markets in August going to Chinese stocks and bonds [11]. Group 3: China's Financial Strategy - China reduced its U.S. Treasury holdings by $25.7 billion in July, bringing its total to $730.7 billion, the lowest since 2009 [12]. - The reduction is part of a broader strategy to balance safety, liquidity, and returns within its $3.3 trillion foreign reserves [12]. - China's economic resilience and ongoing financial reforms are expected to maintain its attractiveness to foreign investors, especially in the context of discussions around "de-dollarization" [14]. Group 4: Market Dynamics - The article emphasizes that capital flows are influenced by risk and return dynamics, with investors shifting between markets based on current conditions [14]. - Regulatory measures are being implemented to enhance liquidity and facilitate foreign investment in onshore markets [15].

Group 1 - Goldman Sachs indicates that the election of Fumio Kishida as the president of the Liberal Democratic Party (LDP) in Japan is leading to increased volatility in Japanese long-term government bonds, which may impact bond markets in the US and UK [1][3] - The report suggests that every 10 basis points increase in Japanese government bond yields could result in a 2 to 3 basis points rise in yields for US, German, and UK bonds [1][3] - Japan's long-term government bonds have been a bellwether for global bond markets this year, with rising yields reflecting concerns over expanding fiscal deficits [1][3] Group 2 - Fumio Kishida's victory in the LDP presidential election positions her to become Japan's first female Prime Minister, with a platform advocating for fiscal expansion and a right-leaning political stance [3] - Kishida's pro-stimulus approach is expected to lead to increased government bond issuance to fund tax cuts and economic stimulus, resulting in a significant rise in the 40-year Japanese government bond yield by 14 basis points [3][6] - The long-term bond sell-off's sustainability will depend on the evolving political landscape, with upcoming 30-year Japanese government bond auctions likely to reveal investor interest [3][6]