Core Insights - The article reviews the bond investment behaviors of banks in the low interest rate cycles of the US, Europe, and Japan, providing insights for the high-quality development of China's banking sector's bond investment business [1] Group 1: Low Interest Rate Cycle Overview - In the US, the Federal Reserve initiated a rate-cutting cycle in 2007, leading to a federal funds rate of 0-0.25% by December 2008, which was later raised to 2.25%-2.5% in December 2015 before being cut again in 2019 and 2020 due to economic slowdowns and the pandemic [2] - The 10-year US Treasury yield fell from 5.3% in 2007 to 1.5% in 2012, and later to a historic low of 0.55% in mid-2020, before rising again due to economic recovery expectations [2] - In Europe, the European Central Bank (ECB) reduced the main refinancing rate from 4.25% in 2008 to 0% by 2016, marking the start of a negative interest rate era, which ended with rate hikes in July 2022 [5] - Japan has experienced a prolonged low interest rate environment since 1999, with the 10-year government bond yield remaining around 0% during the yield curve control (YCC) policy, which is expected to normalize in 2024 [6] Group 2: Characteristics of Low Interest Rate Periods - Market interest rates do not always move in sync with policy rates, with market rates often rising faster than policy rates as the low interest rate cycle nears its end, leading to increased interest rate risk [7] - Despite a weak economic backdrop, low interest rate periods can still experience significant yield volatility due to fluctuations in economic conditions, inflation, and policy expectations [8] - The duration of low interest rate environments varies, with the US experiencing the shortest duration at 3 years, while Japan has been in a low interest rate environment for nearly 30 years [8] Group 3: Bond Investment Strategies in Low Interest Rate Cycles - The low interest rate cycle can be divided into three phases: rapid rate decline, low rate fluctuation, and rapid rate increase [9] - In the rapid rate decline phase, strategies include expanding portfolio size, extending duration, leveraging, and investing in fixed-rate bonds to capitalize on capital gains [10][11] - During the low rate fluctuation phase, strategies focus on increasing risk tolerance, enhancing reallocation returns, and employing active trading to boost capital gains [17] - In the rapid rate increase phase, strategies should aim to reduce portfolio PVBP, shorten duration, and hedge against interest rate risks [29] Group 4: Recommendations for China's Banking Sector - Banks should enhance credit risk tolerance and focus on economically robust regions and industries with stable demand to mitigate risks [30] - Developing intermediary businesses to increase non-interest income is crucial in a low interest rate environment, reducing reliance on bond investment income [31] - Diversifying investment regions and considering overseas opportunities can improve portfolio returns and mitigate interest rate risks [31] - Implementing appropriate hedging strategies based on the current phase of the interest rate cycle is essential for managing risks effectively [31]