Core Viewpoint - The overall risk in the cross-year bond market is controllable, with a tendency for a warm sentiment to continue in the short term. The focus should be on the yield curve dynamics, particularly the narrowing of the 10-2 year spread and maintaining the 30-10 spread around 40 basis points [1]. Group 1: Market Dynamics - The supply-demand relationship for long-term bonds has improved significantly, with most long-term local government bonds issued at rates below 2.5%, indicating strong market absorption capacity [1]. - Technical indicators show a notable improvement, with recent trading sessions experiencing upward momentum and a low-level golden cross in the KDJ indicator, suggesting a shift in short-term funding focus [1]. - Funding rates are stabilizing and declining, but the future downward space is limited unless there is a reduction in the Open Market Operation (OMO) rates [1]. Group 2: Investment Opportunities - The 10-year government bonds and policy financial bonds present a high cost-performance ratio, as their rebound has not fully absorbed the benefits of monetary easing, indicating clear potential for price recovery [2]. - The supply pressure for 10-year bonds is relatively controllable compared to ultra-long bonds, with a current yield of approximately 1.96%, providing a thicker spread protection compared to 10-year government bonds [2]. Group 3: Short and Ultra-Long Bonds - The pricing of medium and short-term bonds has fully reflected the benefits of monetary easing, with limited further downward space and significant compression of spreads, making the cost-effectiveness of carry strategies insufficient [3]. - The issuance of ultra-long local government bonds has been stable, indicating market absorption capacity, but caution is advised regarding older bonds due to potential selling pressure and liquidity issues [3]. - The 30-year government bonds are expected to follow the recovery of 10-year bonds, with a compression of spreads anticipated but not expected to fall below 40 basis points [3].

Core Insights - The bond market in 2025 faced significant challenges, characterized by high volatility and a complex interplay of factors affecting investment strategies [1][2][3] - The pressure on institutions to generate returns has intensified, leading to increased competition and operational difficulties in navigating the market [2][3] Market Dynamics - The bond market experienced a notable decline in interest rates, with the yield on 10-year government bonds decreasing by nearly 1 percentage point compared to the same period in 2024, resulting in a challenging investment environment [3][5] - The yield on 10-year government bonds fluctuated throughout the year, starting at 1.6% and reaching approximately 1.92% by September, reflecting economic recovery expectations and supply pressures [5][6] Institutional Behavior - Different types of institutions displayed varied investment behaviors by the end of 2025, with large commercial and policy banks showing strong buying activity, while other institutions like joint-stock banks and city commercial banks were net sellers [11][12] - The investment strategies of institutions have diverged, with some focusing on short-term trading for excess returns, while others are more cautious, aiming to reduce costs and losses [9][12] Future Outlook - As 2026 begins, the bond market is anticipated to open with a yield of around 1.85% on 10-year government bonds, with expectations for potential interest rate cuts in the first quarter [13][16] - The market is expected to remain volatile, with institutions adopting a cautious approach and preparing for potential adjustments based on monetary policy developments [15][16]

Group 1 - The bond market experienced significant volatility throughout 2025, with a notable concentration of investor positions in 1 to 3-year interest-bearing assets as a defensive strategy against net value uncertainty [2][10][11] - In December, the yield on 30-year government bonds reached a high of 2.2925%, reflecting the market's fragile sentiment and the impact of year-end assessments [10][11] - The introduction of new regulations regarding redemption fees for bond funds provided some relief to the anxious bond market, potentially reshaping investment strategies going into 2026 [10][11] Group 2 - The regulatory environment has shifted positively, with the new redemption fee rules easing previous constraints, which may lead to a recovery in the bond market [3][27] - The pricing of 5-year bank subordinated bonds is expected to see a valuation recovery of 5 to 10 basis points, with new pricing logic anticipated to return to the range of 2.1% to 2.15% [4][43] - The high yields on long-term credit bonds are influenced not only by the new redemption regulations but also by inherent liquidity issues, which may limit trading activity [3][38] Group 3 - The market has shifted focus from seeking excess returns to strictly controlling drawdowns, as evidenced by the significant trading volume in medium-term municipal bonds [11][22] - Fund managers have been the primary drivers of mid-term bond allocations, with net purchases reaching a weekly high of 21.2 billion, surpassing the average weekly volume from October to year-end [11][20] - The strategy of investing in 3-year AA+ municipal bonds has proven to be the most effective in December, highlighting the trend towards medium-term securities [22][23]

Group 1: Report Industry Investment Rating - No industry investment rating is provided in the report. Group 2: Core Viewpoints of the Report - The significant decline in ultra - long bonds is not expected to lead to a significant and continuous increase in the ultra - long bond spread in the long - term. However, short - term risks need further observation. As year - end bank indicator pressures ease, fund and brokerage positions decrease, and insurance allocation demand recovers, the ultra - long bond spread is expected to repair. But short - term risks, especially potential market shocks from concentrated selling by trading institutions, are hard to judge [5][21]. Group 3: Summary by Related Content Current Situation of Ultra - long Bonds - Recently, while other bonds remained stable, ultra - long bonds declined significantly. Since last Friday, medium - and short - term bonds were stable, with 2 - year and 5 - year Treasury yields fluctuating less than 1bp, and the 10 - year Treasury yield rising slightly by 1.1bp. In contrast, the 30 - year Treasury yield rose by 5.0bp, and the 50 - year Treasury yield rose by 5.9bp. This widened the spread between 30 - year and 10 - year bonds to 38.3bps, approaching the highs in late September and early October [1][8]. Reasons for the Weakening of Ultra - long Bonds - Banks' ability to hold long - term bonds is restricted by indicators such as △EVE and the Tier 1 capital ratio close to the 15% regulatory red line, which may lead to selling of long - term bonds to meet requirements or realize floating profits [2][10]. - The public fund fee reform may increase redemption pressure, and year - end net value drawdowns may exacerbate passive redemptions, causing trading institutions like funds and brokerages to reduce long - bond holdings [2][10]. - Insurance institutions' liability growth has slowed in the past two months, with a shift in allocation towards stocks. Insurance premium income growth was negative in September and October, and the proportion of bonds in asset allocation decreased slightly while the stock proportion increased [2][10]. Attractiveness of Ultra - long Bonds - From the perspective of the overall asset portfolio, the increase in ultra - long bond spreads enhances the cost - effectiveness of the barbell portfolio. With the same duration, the barbell portfolio's return is higher than that of the bullet portfolio, increasing the demand for ultra - long bonds and promoting a shift towards a barbell - shaped portfolio [3][12]. - In terms of absolute return, the increase in ultra - long bond yields makes them more attractive compared to other assets. The spread between the 30 - year Treasury and personal mortgage rates is at its lowest since Q3 2017, and considering tax, bad debts, and capital occupation, bonds are more cost - effective than loans. Ultra - long bond yields can cover the liability costs of insurance and banks, and with the slowdown in real - estate sales, future inflows of household deposits and insurance premiums are expected to increase, so the liability side is not a constraint for institutional allocation [4][14]. - Based on previous pricing of the 30 - 10 - year spread using factors like funding prices, net ultra - long bond financing, stock market performance, and ultra - long bond turnover, the current 30 - 10 - year spread is close to the upper limit of one standard deviation, indicating that ultra - long bonds are still within a reasonable range [4][17].

Core Viewpoint - The article discusses the "365-day investment advisory portfolio," which is categorized as a "fixed income +" product, emphasizing its stability and potential for long-term returns through a combination of bonds and a small allocation to stocks [1][3]. Group 1: Investment Strategy - The "365-day investment advisory portfolio" primarily invests in bond funds, which are considered to have lower long-term risks and volatility compared to stock funds, making them suitable for conservative investors [10][11]. - The portfolio focuses on interest rate bonds, such as government bonds, to minimize default risk, while also incorporating a small percentage of stocks (approximately 15%) to enhance returns [12][19]. - The strategy leverages the negative correlation between stocks and bonds, allowing the portfolio to perform well in both bull and bear markets, thus reducing overall volatility [23][25]. Group 2: Performance Metrics - As of August 2025, the "365-day investment advisory portfolio" has shown significant performance, outperforming the average returns of secondary bond funds and mixed bond funds by 3.01% since its inception [26][29]. - The maximum historical drawdown of the portfolio was -4.15%, which is considerably lower than the volatility of the secondary bond index during the same period [29].