Economic Review and 2026 Outlook - In 2025, the actual GDP growth rates for Q1 to Q4 were 5.4%, 5.2%, 4.8%, and 4.5%, while nominal GDP growth rates were 4.6%, 3.9%, 3.7%, and 3.9% respectively, indicating a downward trend in actual GDP growth throughout the year [4][10] - Fixed asset investment (excluding rural households) decreased by 3.8%, the lowest since 2010, while retail sales of consumer goods grew by 3.7%, and export growth (in RMB terms) was 6.1% [4][19] - The economic state in 2025 was characterized by strong supply but weak demand, with resilient production and exports, but persistent weakness in domestic demand [4][19] 2026 Policy and Institutional Behavior Outlook - A moderately loose monetary policy is expected, with a forecasted policy interest rate cut of 10-20 basis points, and a potential reserve requirement ratio (RRR) cut of 50-100 basis points [4][62][66] - The net financing scale of government bonds in 2026 is projected to be around 13.8 trillion yuan, remaining stable compared to the previous year [4][76] - The influence of trading desks on the bond market is anticipated to weaken, while the pricing power of banks and insurance funds is expected to increase due to lower funding costs [4][62][79] Investment Recommendations - The bond market in 2026 is expected to perform better than anticipated, with a projected net issuance of around 20 trillion yuan and significant demand from banks and insurance funds [4][58] - The 10-year government bond yield is expected to fluctuate between 1.6% and 1.9%, while the 30-year government bond yield is projected to be between 1.9% and 2.4% [4][58] - Investors are advised to focus on opportunities in long-term bonds and to monitor oil price fluctuations and changes in risk appetite [4][58]

Report Industry Investment Rating - Not provided in the content Core Viewpoints - In February, the manufacturing PMI was 49.0%. Affected by the concentrated and extended Spring Festival holiday, the short - term production and operation activities of enterprises slowed down. The high - tech manufacturing PMI reached 51.5%, and the momentum of industrial upgrading continued. The service industry was driven by the "holiday economy" during the Spring Festival, with high prosperity in some industries, while the construction industry declined due to the winter construction off - season and the return of migrant workers. From March 2nd to March 6th, the central bank carried out open - market operations in a reduced volume, with a net withdrawal of 15,634 billion yuan in the open market. The trading association issued a notice to encourage more funds to flow into the field of scientific and technological innovation. The credit bond issuance scale was 347.4 billion yuan, and the net financing was 116 billion yuan. The first smart transportation corporate bond in the country was successfully issued, and one issuer's subject level was downgraded during the statistical period [5]. Summary by Relevant Catalogs 1. Macroeconomic Trends 1.1 Economic Data - The comprehensive PMI output index in February was 49.5%, a 0.3% month - on - month decrease. The manufacturing PMI dropped to 49.0% due to the Spring Festival in mid - to - late February. The high - tech manufacturing PMI was 51.5%, higher than the overall manufacturing level. The service business activity index was 49.7%, a 0.2 - percentage - point increase from the previous month. Industries such as accommodation, catering, and cultural and sports entertainment were in a high - level prosperity range. The construction business activity index was 48.2%, affected by the winter construction off - season and the return of migrant workers [7]. 1.2 Capital Market - From March 2nd to March 6th, the central bank carried out 7 - day reverse repurchase operations of 161.6 billion yuan, with 1525 billion yuan of reverse repurchases due. It carried out 80 billion yuan of 3 - month (91 - day) outright reverse repurchases, with 100 billion yuan of outright reverse repurchases due. In total, the open - market net withdrawal was 156.34 billion yuan. The average values of DR001 and DR007 from March 2nd to 6th were 1.2870% and 1.4340% respectively, down 6.94BP and 7.17BP from the week before the holiday [8][9]. 2. Bond Market Observation 2.1 Bond Market Policies - On March 2nd, the China Inter - bank Market Dealers Association issued a notice to further guide financial resources to "invest early, invest in small enterprises, invest in the long - term, and invest in hard technology", encourage more funds to flow into the field of scientific and technological innovation, and improve the bond issuance, trading mechanism, and rating methods [10]. 2.2 Bond Issuance - This week, 1007 bonds were issued in the primary market, with a net financing of 362.5 billion yuan. Among them, 428 credit bonds were issued, with a scale of 347.4 billion yuan and a net financing of 116 billion yuan. Except for 3 - year corporate bonds and 3 - year medium - term notes of AAA - level issuers, the average issuance interest rates of other major bond types at each subject level were above 2% [11][12]. 2.3 New Bond Types - On March 5th, the "Shandong Hi - Speed Group Co., Ltd. 2026 Publicly Issued Perpetual Corporate Bonds (Phase II) (Smart Transportation)" was successfully issued on the Shanghai Stock Exchange, with a scale of 1 billion yuan and a coupon rate of 1.94%. It is the first smart transportation corporate bond in the country [13]. 3. Risk Warning 3.1 Subject Level Downgrade - During the statistical period, the subject level of one issuer, Meituan, was downgraded from A - to BBB+ by S&P, with a negative outlook [16]. 3.2 Subject Outlook Downgrade - No issuer's rating outlook was downgraded during the statistical period [17]

1. Report Industry Investment Rating No relevant information provided. 2. Core Viewpoints of the Report The "Notice" is a systematic upgrade of the "Document No. 86", which effectively guides funds to flow into the "real - tech" and "hard - tech" fields. It better matches the investment and R & D needs of issuers of science and technology innovation bonds, continuously optimizes the investment and financing ecosystem of the science and technology innovation bond market, and promotes the further improvement of quality and expansion of the market. In the future, with the coordinated efforts of various science and technology innovation support policies, China's science and technology innovation bond market is expected to develop healthily, and its market functions will be continuously deepened, becoming an important financial force for serving science and technology innovation and industrial upgrading [16]. 3. Summary According to the Directory 3.1 Main Content In 2025, China's science and technology innovation bond market developed rapidly, with an issuance scale of nearly 2.3 trillion yuan, almost doubling year - on - year. On March 2, 2026, the Dealer Association issued the "Notice", which comprehensively optimized and upgraded the "Document No. 86". The "Notice" contains ten core contents, focusing on refining the identification standards of science and technology - based enterprises, implementing hierarchical and classified management of the use of raised funds, guiding enterprises to issue medium - and long - term science and technology innovation bonds, etc., to optimize the market ecosystem of science and technology innovation bonds [4]. 3.2 Policy Impact 3.2.1 Expand the Identification Scope of Science and Technology - Based Enterprises and Strengthen the "Hard - Tech" Orientation The "Notice" adds six types of titles on the basis of the seven types in the "Document No. 86", expanding the identification scope of science and technology - based enterprises. It also supports the development of "hard - tech" enterprises, encourages underwriters to serve key fields, and includes the situation of underwriters introducing first - time issuers into the market evaluation of underwriters' practice, strengthening the policy orientation of serving "hard - tech" [5][6][7]. 3.2.2 More Precise Use of Funds to Eliminate "Pseudo - Science and Technology Innovation" The "Notice" upgrades the standard for issuing science and technology innovation bonds relying on patents from "only looking at the number of patents" to "the number of patents + the proportion of science and technology income". It also implements hierarchical and classified management of the use of raised funds, ensuring that funds flow to the science and technology innovation field and eliminating "pseudo - science and technology innovation" enterprises [8][9]. 3.2.3 Optimize the Issuance Mechanism to Match the R & D Cycle The "Notice" guides enterprises to issue medium - and long - term science and technology innovation bonds, extending the lower limit of the bond term for science and technology - based enterprises to more than 270 days. It also improves the convenience of equity investment institutions issuing science and technology innovation bonds through the "Regular Issuance Plan" and the "Additional Issuance" mechanism, matching the business rhythm of PE/VC [10][12]. 3.2.4 Improve the Rating Method System to Enhance the Rating Quality of Science and Technology Innovation Bonds The "Notice" encourages rating agencies to improve the rating method, focusing on the "soft power" of science and technology innovation enterprises. It also requires strict compliance with the rating consistency principle and includes the rating agencies' performance in the science and technology innovation bond field in the market - based evaluation, promoting the improvement of rating quality [13]. 3.2.5 Optimize Information Disclosure Requirements and Emphasize the Spirit of Contract The "Notice" explores the introduction of information disclosure and liability agreement clauses based on agreements for privately - issued science and technology innovation bonds, taking into account the confidentiality needs of science and technology enterprises. It also clarifies the rights and responsibilities of issuers, underwriters, and investors, reducing potential disputes and risks [14]. 3.2.6 Improve the Investment Ecosystem to Promote the Coordinated Development of Investment and Financing The "Notice" promotes the improvement of the investment - end mechanism, guiding investment institutions to increase investment in science and technology innovation bonds and optimize the assessment system. It also promotes the development of science and technology innovation bond indexes and index - based products, improving secondary - market liquidity and enriching the investment product system [15]. 3.3 Summary The "Notice" effectively guides funds to flow into the "real - tech" and "hard - tech" fields, optimizes the investment and financing ecosystem of the science and technology innovation bond market, and promotes the further improvement of quality and expansion of the market. The science and technology innovation bond market is expected to develop healthily in the future [16].

Core Insights - The current market is characterized by a consensus range constraint and a technical pattern indicating a consolidation phase, with the central bank suggesting an interest rate range of approximately 1.75% to 1.9%, indicating that trading is unlikely to exceed this range in the short term [9] - There is speculation whether the bond market is preemptively reacting to the upcoming Two Sessions, as the period before the sessions often sees a vacuum in policy and economic data, leading to potential market reversals post-sessions [10] - The market's defensive positioning may reveal opportunities, as this year's local economic targets are set in ranges, suggesting that stimulus policies may not be overly aggressive [10] Market Strategy - The current strategy suggests taking advantage of adjustments in the bond market by focusing on liquid credit varieties to capture coupon income, particularly high-rated perpetual bonds with maturities of 3 to 5 years [11] - The past week saw a notable adjustment in perpetual bonds, with limited overall interest rate changes, while local government bonds remained relatively stable [11] - The trading logic indicates a rise in defensive sentiment before the Two Sessions and the introduction of new housing policies, with a slight overall market pullback but limited in extent [12] Future Outlook - The outlook remains cautiously optimistic, with potential for interest rate cuts and viewing market adjustments as opportunities, suggesting a slight bullish stance in the short to medium term [11] - Recommended strategies include focusing on 2-year local government bonds and high-grade perpetual bonds, as well as monitoring real estate bonds for recovery opportunities [11]

Core Viewpoint - The People's Bank of China (PBOC) is implementing a moderately accommodative monetary policy, with a focus on improving policy efficiency and effectiveness while maintaining liquidity in the financial system [1][2]. Group 1: Monetary Policy and Liquidity - In January 2026, the PBOC reduced the rates of various structural monetary policy tools by 0.25 percentage points, resulting in a net injection of 1 trillion yuan into the market [2][3]. - The average daily trading volume in the interbank market was 222.5 trillion yuan, reflecting a 6% month-on-month decrease but a 51% year-on-year increase [1][2]. - The PBOC's actions included a 9,000 billion yuan increase in Medium-term Lending Facility (MLF) and a total of 20,000 billion yuan in reverse repos, effectively countering the impacts of increased government bond issuance and seasonal cash withdrawals [2][3]. Group 2: Bond Market Performance - In January, the issuance of bonds in the interbank market reached 4.4 trillion yuan, a year-on-year increase of 22.1%, with net financing of 1.99 trillion yuan, marking a 136.1% month-on-month increase [4]. - The yields on various bonds mostly declined, with the 10-year government bond yield stabilizing between 1.8% and 1.9%, and the credit spreads narrowing [4][5]. - The yield curve for government bonds showed a mixed performance, with some maturities experiencing slight decreases while others saw minor increases [4]. Group 3: Interest Rate Swaps and Trading Activity - The interest rate swap curve saw a slight upward movement, with 6-month, 1-year, and 5-year Shibor 3M swap rates showing minor increases [6][7]. - The average daily transaction volume for RMB interest rate swaps increased by 23%, with a nominal principal amount of 4.4 trillion yuan [7]. - The trading of interest rate options surged by 280%, indicating a growing interest in hedging strategies within the market [7].

Core Viewpoint - The Hong Kong government has introduced a series of favorable measures in the 2026/2027 budget to promote innovation and technology development, artificial intelligence applications, asset and wealth management, and capital market construction [3]. Group 1: Support for Emerging Industries - The budget emphasizes support for emerging industries, including attracting aerospace companies to Hong Kong and reviewing listing regulations to facilitate the listing of aerospace technology firms [4]. - In the microelectronics sector, the Hong Kong Investment Corporation has established the "Hong Kong RISC-V Alliance" to promote collaboration among industry, academia, and investors, and is actively advancing research and applications in embodied intelligence, quantum technology, and new materials [4]. - A "Innovation and Technology Industry Guidance Fund" of HKD 10 billion will be launched to lead market capital investment in strategic emerging fields such as life and health technology, AI, and robotics [4]. Group 2: Promotion of AI Development - The budget outlines a comprehensive push for "AI+" development, including the establishment of an "AI+ and Industry Development Strategy Committee" to drive industry transformation [6]. - An AI research institute will commence operations in the second half of the year to support project development and results transformation, alongside a public AI training initiative with a budget of HKD 50 million [6]. - Additional funding of HKD 100 million will be allocated to introduce leading industry technologies to accelerate the government's digital transformation [6]. Group 3: Tax System Optimization for Family Offices and Funds - The Hong Kong Monetary Authority and the Securities and Futures Commission are actively implementing the "Fixed Income and Currency Market Development Roadmap" to enhance the bond market [7]. - The government plans to optimize the tax system to attract family offices and funds, including broadening the definition of "funds" to cover specific single-investor funds and listing digital assets, precious metals, and certain commodities as eligible for tax relief [7]. - There are currently over 3,300 single family offices established in Hong Kong, indicating a growing interest in the region for wealth management [7]. Group 4: Development of REITs and Fund Market - The Hong Kong government and the Securities and Futures Commission will continue to promote the development of the REITs market, including submitting legislative amendments to facilitate privatization or restructuring of REITs [8]. - A proposal will be made to exempt non-residential property transfer stamp duty for REITs preparing for listing, with legislative amendments expected to be submitted in the first half of next year [8]. - The Hong Kong Stock Exchange's comprehensive fund platform will expand its functions to include payment and settlement processes for fund sales, enhancing market efficiency and reducing transaction costs [8].

Core Viewpoint - Foreign capital is significantly selling off Chinese government bonds while simultaneously increasing investments in U.S. Treasury bonds, indicating a strategic reallocation rather than a complete withdrawal from the Chinese market [1][5][10]. Group 1: Foreign Capital Movements - From May to July 2025, foreign capital sold off 370 billion RMB in Chinese bonds, with an additional 100 billion RMB reduction in August, bringing foreign holdings to a five-year low [5][7]. - Despite the sell-off, foreign capital still represents less than 0.2% of the total Chinese bond market, which amounts to 192 trillion RMB [7]. - In August, the average daily trading volume of the Stock Connect reached a record high of 294.2 billion RMB, indicating that some of the capital withdrawn from bonds has shifted to the stock market [10]. Group 2: U.S. Treasury Bonds - As of July 2025, foreign holdings of U.S. Treasury bonds reached 9.159 trillion USD, with Japan holding 1.151 trillion USD and the UK at 899.3 billion USD [3]. - The U.S. national debt has surpassed 37 trillion USD, with interest payments accounting for 3.2% of GDP, raising concerns about sustainability [3]. Group 3: Market Dynamics - The trend of foreign capital moving away from Chinese bonds is characterized as "seasonal reallocation," with a potential for reinvestment in the future, as evidenced by a net purchase of 41.6 billion USD in 2024 after earlier sell-offs [8][10]. - The reduction in U.S. Treasury holdings by China, amounting to 25.7 billion USD, reflects a strategic adjustment of foreign exchange reserves rather than a confrontational stance [10][12]. Group 4: Global Reserve Diversification - The global trend shows central banks and sovereign funds reducing their dollar asset holdings while increasing gold reserves and non-dollar assets, indicating a shift away from the long-standing dominance of the dollar [15]. - China's gold reserves have been increasing for ten consecutive months, now accounting for 7.64% of its foreign exchange reserves, which supports the internationalization of the RMB [12].

Group 1 - The UK 10-year government bond yield decreased by 1.5 basis points to 4.353%, with a cumulative decline of 6.3 basis points for the week following the US Supreme Court ruling against Trump's tariff policy [1] - The 2-year UK bond yield increased by 0.7 basis points to 3.578%, with a cumulative drop of 1.5 basis points for the week [1] - The 30-year UK bond yield fell by 1.8 basis points, accumulating a weekly decline of 6.5 basis points [1] - The 50-year UK bond yield decreased by 1.2 basis points, with a total weekly drop of 7.2 basis points [1] - The 2/10 year UK bond yield spread decreased by 2.310 basis points, standing at +77.333 basis points, with a cumulative decline of 4.758 basis points for the week [1]

Core Viewpoint - The latest report from the U.S. Treasury reveals a significant trend of foreign countries reducing their holdings of U.S. Treasury bonds, with a total net sell-off of $88.4 billion in December 2025, leading to a total holding below $9.3 trillion [1][6][12]. Group 1: Major Holders' Actions - Japan, the only non-U.S. country holding over $1 trillion in U.S. Treasuries, reduced its holdings by $17.2 billion in December, bringing its total to $1,185.5 billion [3][6]. - The United Kingdom, the second-largest foreign holder, made a substantial reduction of $23 billion, decreasing its holdings to $866 billion [5][6]. - China continued its strategy of slight reductions, decreasing its holdings by $0.4 billion to $683.5 billion, marking four consecutive months of net selling [8][6]. Group 2: Global Trends - Among the top ten foreign holders of U.S. Treasuries, only Luxembourg and Ireland increased their holdings in December, while the remaining eight countries reduced their positions [6]. - The overall trend indicates a shift in asset allocation, with countries opting to sell off U.S. Treasuries in favor of other investments, particularly gold [10][12]. Group 3: Underlying Factors - The decline in U.S. Treasury prices due to rising yields has led to a "passive reduction" effect, impacting the market value of holdings [7]. - The increasing appeal of gold as a reserve asset has prompted many central banks to adjust their reserve structures, leading to the liquidation of U.S. Treasuries to fund gold purchases [10]. - Political tensions, particularly since the Trump administration, have influenced countries like the UK, Canada, and France to express their discontent through reduced Treasury holdings, serving as a form of silent protest [12][13]. Group 4: Implications for U.S. Treasury Market - The current situation presents a complex challenge for U.S. Treasury Secretary, who must balance the discontent of allies with the need to maintain the attractiveness of U.S. debt to international investors [12][13]. - The evolving dynamics in the U.S. Treasury market could reshape international capital flows and have lasting impacts on global financial markets [13].

Core Viewpoint - In early 2026, China's adjustment of its asset structure, particularly its reduction of U.S. Treasury holdings, has caused significant fluctuations in the global financial market, raising concerns about the stability of the U.S. dollar and its role as a reserve currency [1][3][18]. Group 1: China's Actions - As of early 2026, China's holdings of U.S. Treasuries have fallen to $682.6 billion, the lowest level in 17 years, down from a peak of $1.3 trillion in January 2013, indicating a cumulative reduction of over $500 billion [7]. - The reduction in U.S. Treasury holdings is part of a gradual adjustment strategy that has been ongoing for over a decade, aimed at mitigating market volatility and concentration risks [7]. - China has been reallocating its assets towards more stable investments, such as increasing its gold reserves to 74.19 million ounces by the end of January 2026, and providing low-interest loans to developing countries like Indonesia and Argentina [9]. Group 2: U.S. Economic Context - The U.S. consumer price index (CPI) rose by 2.4% year-on-year in January 2026, with core CPI increasing by only 2.5%, the smallest rise since March 2021, indicating a significant reduction in inflationary pressures [5]. - The U.S. federal debt has surpassed $38 trillion, with annual interest payments exceeding $1.2 trillion, raising concerns about the sustainability of U.S. debt and the credibility of U.S. Treasury securities [13]. - The U.S. Treasury Secretary has expressed a desire to maintain a stable relationship with China while managing risks associated with the reduction of U.S. Treasury holdings [15]. Group 3: Global Financial Implications - The reduction of U.S. Treasury holdings by China has triggered a broader trend among the world's top eight holders of U.S. debt, with emerging markets like India and Saudi Arabia also reducing their holdings [18]. - The share of the U.S. dollar in global foreign exchange reserves has dropped to approximately 40%, the lowest in at least 20 years, while gold has surpassed U.S. Treasuries as the leading reserve asset [18]. - The fluctuations in the U.S. dollar reflect underlying issues such as fiscal imbalance and declining credit ratings, suggesting a shift towards a more diversified global monetary system [22].