1. Report Industry Investment Rating - Not provided in the document 2. Core Views of the Report - In Q4 2025, the bond market valuation recovered, and the net asset value of the bond funds in the whole market stopped falling and rebounded. However, the "asset shortage" pattern continued, the yield of credit bonds declined again, and the supply of desirable medium - to - high - yield assets shrank. Against this background, bond funds actively explored returns in terms of variety and duration in Q4, while remaining relatively cautious about credit downgrading [5]. - From the overall situation of bond fund heavy - holdings, the return range was further compressed, and institutions tended to adopt conservative strategies. The yields of the heavy - holding bond issuers were highly concentrated in the low - return range below 1.8%, and the scale of high - yield assets above 2.5% continued to shrink [5]. - For heavy - holding of urban investment bonds, the regional level showed a downward trend, with a preference for short - term durations. Zhejiang and Jiangsu were still the core heavy - holding regions, but the allocation intensity decreased. Institutions' preference for regions such as Sichuan, Shanghai, and Hunan increased. In terms of term distribution, the scale of each province was mainly concentrated around 1 - year, and as the term lengthened, the holding preference converged significantly towards strong provinces [5]. - For heavy - holding of financial bonds, bank Tier 2 and perpetual bonds dominated the allocation, and there was an obvious trend of variety downgrading. Financial bonds accounted for 72% of all heavy - holding credit bonds, with bank Tier 2 and perpetual bonds as the core varieties, and the allocation was relatively concentrated in the medium - to - high - yield range of 2.0% - 2.5%. In terms of term, a dumbbell - shaped allocation was preferred [5]. - For heavy - holding of industrial bonds, the allocation was concentrated in core industries, and institutions were more cautious about real - estate bonds. Non - bank finance and public utilities were the top two industries in terms of total market value of holdings, and were significantly increased in holdings compared with the previous period. Industries such as real estate, transportation, and coal were significantly reduced in holdings [5]. 3. Summary According to Relevant Catalogs 3.1 Bond Fund Heavy - Holding Overview 3.1.1 Overall Situation - As of the end of Q4 2025, there were 3,993 bond - type funds in the whole market, with a total scale of 11.10 trillion yuan, an increase of 0.36 trillion yuan compared with the end of the previous quarter. Bond - type funds were mainly medium - and long - term pure - bond funds, presenting a structure characterized by "dominated by medium - and long - term pure - bond funds and supplemented by hybrid bond funds" [11]. 3.1.2 Credit Bond Heavy - Holding from a Return Perspective - Most bond funds had a stable investment style and tended to adopt relatively conservative investment strategies. The yields of heavy - holding bond issuers were highly concentrated in the range below 1.8%. The supply of high - yield assets continued to shrink, and the high - yield assets above 2.5% further contracted compared with Q3 2025 [19]. - In Q4, the "asset shortage" continued, and the yields of credit bonds declined again. The concentration range of heavy - holding bond yields shifted downward. Compared with Q3, the balance of heavy - holding bonds with issuer yields below 1.8% increased significantly, while the holding balances of heavy - holding bonds in the ranges of 1.8 - 2.0%, 2.0 - 2.5%, and above 2.5% decreased to varying degrees [19]. 3.1.3 Types of Bond Fund Heavy - Holding Bonds and Their Performance in Different Dimensions - In Q4 2025, bond fund heavy - holding bonds generally showed a configuration trend of low - return concentration and high - return contraction. Financial bonds dominated with over 540 billion yuan, with bank Tier 2 and perpetual bonds as the core configuration. Industrial bonds tended to have medium - to - low returns, and urban investment bonds were concentrated in the 1.8% - 2.0% range [29]. - In terms of implicit rating distribution, financial and industrial bonds preferred high - rating issuers, while urban investment bonds showed an obvious downward trend. In Q4, incremental allocation was concentrated in high - rating bonds, and institutions were relatively cautious about credit downgrading [32]. 3.2 Characteristics of Urban Investment Bond Heavy - Holding 3.2.1 Regional and Hierarchical Characteristics of Heavy - Holding Urban Investment Bonds - In Q4 2025, the heavy - holding regions of urban investment bonds showed a certain downward trend, including prefecture - level cities in key provinces, district - level cities in non - key provinces, and park - level areas in municipalities. Zhejiang and Jiangsu were still the core heavy - holding regions, but the allocation intensity decreased. Institutions' preference for regions such as Sichuan, Shanghai, and Hunan increased [38]. 3.2.2 Term Characteristics of Heavy - Holding Urban Investment Bonds - Urban investment bonds generally preferred short - term durations. As the term lengthened, the holding preference converged significantly towards strong provinces. In Q4 2025, the term distribution of urban investment bond heavy - holdings was significantly differentiated, with the scale of each province mainly concentrated around 1 - year. The overall heavy - holding duration lengthened, but institutions were still cautious about ultra - long - term urban investment bonds [43]. 3.2.3 Analysis of the Top 20 Heavy - Holding Urban Investment Bond Issuers - The top 20 heavy - holding urban investment bond issuers in Q4 2025 were mainly medium - level prefecture - level platforms, with less obvious head - concentration characteristics. In Q4, the number of provincial - level platforms increased, and the degree of credit downgrading decreased. Some platforms were significantly reduced in holdings, while some provincial - level transportation platforms were increased in holdings [48]. 3.3 Overview of Financial Bond Heavy - Holding 3.3.1 Analysis of the Duration of Heavy - Holding Financial Bonds - Bank Tier 2 and perpetual bonds were mainly heavy - held by national and joint - stock banks, with a dumbbell - shaped term configuration preference. Compared with Q3, institutions' preference for state - owned banks and 3 - year terms increased significantly. The heavy - holding scale of Tier 2 and perpetual bonds increased, with state - owned banks showing obvious increases in holdings. Non - Tier 2 and perpetual bonds focused on 1 - year commercial financial bonds, and secondary - type bonds focused on 4 - year insurance bonds and 2 - 3 - year TLAC bonds [52]. 3.3.2 Analysis of the Top 20 Heavy - Holding Financial Bond Issuers - The top 20 heavy - holding bank Tier 2 and perpetual bond issuers were mainly state - owned banks, joint - stock banks, and relatively leading city commercial banks. State - owned banks generally increased their holdings, while joint - stock banks showed obvious differentiation. The yields of heavy - holding bonds generally declined rapidly, and there was significant differentiation in the remaining terms among issuers [61]. 3.4 Situation of Industrial Bond Heavy - Holding 3.4.1 Analysis of Heavy - Holding Industrial Bond Industries - Industrial bond allocation was still centered on industries with strong quasi - public attributes and industries with high financial relevance. Non - bank finance, public utilities, and transportation were the top three industries in terms of total market value of holdings. Non - bank finance and public utilities were significantly increased in holdings, while industries such as real estate, transportation, and coal were significantly reduced in holdings [71]. - Short - term duration varieties were still the main allocation. Most industries had a proportion of 0 - 2 - year terms exceeding 50%. Non - bank finance significantly lengthened the heavy - holding duration, while public utilities further increased the allocation of short - term duration bonds [72]. 3.4.2 Analysis of the Top 20 Heavy - Holding Industrial Bond Issuers - The top 20 heavy - holding industrial bond issuers were all central and local state - owned enterprises, mainly distributed in industries such as non - bank finance, public utilities, transportation, and coal. The allocation of industrial bond issuers was relatively concentrated. The average valuation yields of the top 20 heavy - holding industrial bond issuers generally declined, and there was significant differentiation in term changes among issuers [76]. 3.4.3 Analysis of the Top 10 Heavy - Holding Real - Estate Bond Issuers - State - owned and central - enterprise - affiliated real - estate bond issuers still occupied a core position. Some issuers were significantly increased in holdings, while some were significantly reduced in holdings. The real - estate bond allocation showed the characteristics of "medium - to - short - term duration + concentration on strong - credit issuers", and there was obvious differentiation in the return and duration strategies [79].

1. Report Industry Investment Rating No information provided in the given content. 2. Core Viewpoints of the Report - The traditional credit bond investment strategy centered on "holding to maturity" has gradually become ineffective. Trading to increase returns or reduce drawdowns has become an important approach. "Valuation elasticity" is crucial in different market environments, and the report focuses on measuring the valuation elasticity of credit entities to guide investment decisions [8][9]. - High - elasticity entities show strong offensiveness in the yield - downward stage but perform poorly in the yield - upward stage. Low - elasticity entities are the opposite, showing certain resistance to decline in the yield - upward stage. Medium - elasticity entities' performance is generally between the two [3][26]. - Based on the yield performance of high, medium, and low - elasticity credit entities in different stages, credit bond portfolio rebalancing can be carried out according to the 3 - year AA+ medium - short note yield trend. The upper and lower limits of the 10 - year Treasury bond yield can be used to determine the timing of portfolio rebalancing [4][36]. 3. Summary According to the Catalog 3.1 How to Measure the Valuation Elasticity of Credit Entities - The valuation elasticity of each credit entity is measured by the relative fluctuation range of the spread during the "upward" or "downward" stages of the yield. From 2023, the time period is divided into 5 "upward", 6 "downward", and 2 "oscillating" stages based on the 3 - year AA+ medium - short note yield curve [1][10]. - Using non - guaranteed, public bonds in stock on March 13 as samples, calculate the excess spread change amplitude between individual bonds and the same - term, same - implied rating curve in each stage to obtain the average spread change of each credit entity. If the average upward or downward spread change of an entity is in the top 30% of issuers of the same type, it is defined as "high valuation elasticity"; if it is in the bottom 30%, it is "low valuation elasticity"; otherwise, it is "medium valuation elasticity" [1][12]. - If an entity is defined as "high valuation elasticity" at least 6 times and less than 5 times as "low valuation elasticity" in 11 yield upward or downward stages, it is a "high - elasticity entity"; if it is defined as "low valuation elasticity" at least 6 times and less than 5 times as "high valuation elasticity", it is a "low - elasticity entity"; if it is defined as "medium valuation elasticity" at least 6 times and less than 5 times as "high valuation elasticity" or "low valuation elasticity", it is a "medium - elasticity entity". 1149 issuers with non - guaranteed public bonds in stock are screened out, accounting for 39% of all public bond issuers, including 345 high - elasticity entities, 318 low - elasticity entities, and 486 medium - elasticity entities [2][14]. 3.2 Performance of Various Entities in Different Stages - High - elasticity entities show strong offensiveness in the yield - downward stage, with narrowing excess spreads, but perform poorly in the yield - upward stage. For example, during February 3 - August 4, 2023, and December 12, 2023 - August 5, 2024, the excess spreads of high - elasticity entities were significantly compressed by 31bp and 36bp respectively. In the yield - upward stage, they are sold off, and the excess spreads generally widen [26]. - Low - elasticity entities perform mediocrely in the yield - downward stage but show certain resistance to decline in the yield - upward stage. In 6 yield - downward cycles, the excess spreads of low - elasticity entities widened in 5 cycles, underperforming high - and medium - elasticity entities. In 5 adjustment processes, the excess spreads of low - elasticity entities narrowed by 1 - 5bp, showing better resistance to decline [26]. - The performance of medium - elasticity entities is generally between the two. Since August 2024, their yield trends have been basically consistent with the overall trend, and the excess spreads are mostly around 0bp [26]. - In terms of holding - period yields, high - elasticity entities perform better in the bond market yield - downward period, and low - elasticity entities are more resistant to decline in the bond market adjustment period. This characteristic is more obvious for AAA high - grade entities. In 6 yield - downward stages, the holding - period yields of AAA high - elasticity entities are higher than those of low - elasticity entities, while in 5 adjustment cycles, the losses of low - elasticity entities are smaller, and medium - elasticity entities are in between [30]. 3.3 Using the Upper and Lower Limits of the 10 - year Treasury Bond Yield to Determine the Timing of Portfolio Rebalancing - When the yield is at a high level and is expected to decline, increase the allocation of high - elasticity entities to pursue excess returns from spread compression. When the yield is at a low level and is expected to adjust, switch to medium - or low - elasticity entities, which are more resistant to decline than high - elasticity entities and may obtain excess spreads. It is recommended to choose low - elasticity urban investment entities first [36]. - Since 2025, the yield trend of 3 - year AA+ medium - short notes is basically the same as that of the 10 - year Treasury bond but slightly lags behind. Since the third quarter of 2025, the 10 - year Treasury bond yield has been running in a range of 1.75% - 1.9%. The upper and lower limits of the 10 - year Treasury bond yield can be used to determine the timing of portfolio rebalancing. As of March 16, the 10 - year Treasury bond yield is 1.83%, in the middle of the range. Considering that the spread between the 3 - year AA+ medium - short note and the 10 - year Treasury bond has reached a low point, there may be a risk of valuation adjustment for credit bonds. High - elasticity entities can be reduced, and low - or medium - elasticity entities can be increased [4][36][37].

Group 1: Credit Market Insights - The lower limit for 1-year certificates of deposit (CDs) is estimated to be 1.5%, with a potential compression towards this limit expected by early April[1] - Recent trends show that both CDs and short-term bonds have been declining, raising concerns about potential overcorrection and subsequent risks of rebound[7] - The current pricing logic for the bond market's short and long ends is significantly different, making mean reversion logic less applicable[7] Group 2: Market Drivers and Trends - The central bank's monetary policy adjustments have led to a gradual decrease in funding volatility, supporting a sustained liquidity environment[9] - The issuance of CDs has been continuously shrinking, reflecting limited enthusiasm from banks to supplement liabilities due to general credit issuance intensity[9] - The recent upgrade in interbank demand deposit self-discipline has positively impacted short-term bonds, with market reactions stronger than anticipated[11] Group 3: Financial Data and Projections - February credit growth showed a year-on-year decrease compared to January, but this is not expected to significantly alter the outlook for credit issuance in 2026[16] - The net maturity of 6-month buyout operations is projected at 100 billion, similar to the previous 3-month buyout of 200 billion, indicating banks are proactively reducing buyout volumes rather than the central bank cutting back on liquidity[16] - The 1-year government bond yield has recently dropped below 1.5%, which may open up further downward space for CDs[10] Group 4: Risk Considerations - Potential risks include unexpected liquidity tightening, accelerated economic recovery, and increased bond supply[46]

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - In January 2026, personal deposits in financial institutions decreased by 3.37 trillion yuan year-on-year, while corporate deposits increased by 2.80 trillion yuan, government deposits increased by 1.79 trillion yuan, and non-bank deposits increased by 2.84 trillion yuan, indicating a trend of deposit migration [12][13] - The net financing of government bonds under the social financing (社融) measure increased by 0.28 trillion yuan year-on-year, but the larger increase in government deposits suggests a potential slowdown in fiscal spending [12] - The overall expansion of bank assets and liabilities is supported by the recovery of interbank asset-liability chains, but the decrease in medium- and long-term loans indicates that the real estate sector still needs to recover [19] Summary by Sections Liabilities - In January 2026, personal deposits saw a significant year-on-year decrease, confirming the trend of deposit migration, while corporate and non-bank deposits increased by a total of 5.63 trillion yuan, which is much larger than the decrease in personal deposits [12][13] - Large banks experienced a greater increase in non-bank deposits compared to small banks, indicating that some deposits from small banks may have migrated to large banks due to stronger custody services [13] - The "other" category in the funding sources of the credit balance sheet decreased by 2.39 trillion yuan year-on-year, likely due to increased interbank certificates of deposit and bank repurchase lending [12] Assets - Personal loans increased year-on-year, primarily driven by short-term loans and medium- to long-term operating loans, while medium- to long-term consumer loans decreased by 0.16 trillion yuan, possibly due to the sluggish recovery in real estate sales [17] - Corporate loans decreased year-on-year, mainly due to a reduction in bill financing by 0.36 trillion yuan, although short-term corporate loans increased by 0.34 trillion yuan [17] - Investment in debt and equity increased by 0.37 trillion yuan year-on-year, aligning with trends of fiscal expansion and non-bank balance sheet growth [17] Overall Analysis - The January 2026 data indicates a significant increase in fiscal financing and a recovery in interbank asset-liability chains, which temporarily supports the expansion of bank assets and liabilities [19] - However, the decrease in medium- and long-term loans suggests ongoing challenges in the real estate sector, and the support from non-bank sectors for bank asset-liability expansion may weaken as high-interest deposits mature [19]

Group 1 - The effectiveness of coupon strategies and the certainty of arbitrage space remain high, providing support for credit bond allocation [6][7] - The stability of the liability side and the effectiveness of coupon strategies contribute to the strong anti-drawdown characteristics of credit bonds [6] - The opening of amortized debt funds and the increase in allocation to credit bonds provide support for the demand for credit bonds in March [6][9] Group 2 - The credit bond market saw a net financing outflow for two consecutive weeks, with a total issuance of 917.9 billion yuan and a maturity of 1,757 billion yuan, resulting in a net financing of -839.1 billion yuan [11][12] - The issuance of short-term financing bonds, medium-term notes, and corporate bonds increased compared to the previous week, with AAA-rated issuers making up the largest proportion at 59.5% [11][12] - The secondary market showed increased trading volume, with a total transaction of 4,812 billion yuan, and the yield on medium-term notes slightly increased [14][15] Group 3 - There are opportunities to explore the yield spread of credit bond varieties, particularly in perpetual bonds, which have a higher yield spread compared to ordinary industrial bonds [7][10] - Recommended strategies for perpetual bonds include a coupon strategy for coal and steel industry entities with a remaining term of less than 2 years, and a duration strategy for public utilities and transportation central state-owned enterprises around 5 years [7][10]

1. Report Industry Investment Rating - Not provided in the given content 2. Core Viewpoints of the Report - Among the bonds with discounted transactions, "25 Grid MTN024" had a relatively large deviation in bond valuation price. Among the bonds with rising net prices, "25 Qingdao Chengyang MTN002" led in terms of valuation price deviation. Among the Tier 2 and perpetual bonds with rising net prices, "22 Nanjing Bank Perpetual Bond 01" had a relatively large deviation in valuation price; among the commercial financial bonds with rising net prices, "23 Agricultural Bank of China Three - Rural Bond" led in terms of valuation price deviation. Among the bonds with a transaction yield higher than 5%, real - estate bonds ranked high. The changes in credit bond valuation yields were mainly distributed in the (0,5] interval. The transaction terms of non - financial credit bonds were mainly distributed between 2 and 3 years, with the 0.5 - 1 - year variety having the highest proportion of discounted transactions; the transaction terms of Tier 2 and perpetual bonds were mainly distributed between 4 and 5 years, and bonds of various terms were generally traded at a discount. By industry, the bonds in the electronics industry had the largest average deviation in valuation price [2] 3. Summary According to Relevant Catalogs 3.1 Discounted Transaction Tracking - Bonds such as "25 Grid MTN024", "24产融05", and "25邛崃建投PPN001A" had discounted transactions, with different remaining terms, valuation price deviations, and transaction scales. For example, "25 Grid MTN024" had a remaining term of 14.48 years, a valuation price deviation of - 0.30%, and a transaction scale of 95400000 yuan [4] 3.2 Tracking of Bonds with Rising Net Prices - Bonds like "25 Qingdao Chengyang MTN002", "24 Huaibei 03", and "25 Huai 'an Investment 03" had rising net prices, with varying remaining terms, valuation price deviations, and transaction scales. For instance, "25 Qingdao Chengyang MTN002" had a remaining term of 2.99 years, a valuation price deviation of 0.27%, and a transaction scale of 40040000 yuan [5] 3.3 Tracking of Tier 2 and Perpetual Bond Transactions - Bonds including "22 Nanjing Bank Perpetual Bond 01", "22 Ningbo Bank Tier 2 Capital Bond 01", and "22 Huaxia Bank Tier 2 Capital Bond 01" were involved in transactions, with different remaining terms, valuation price deviations, and transaction scales. For example, "22 Nanjing Bank Perpetual Bond 01" had a remaining term of 1.82 years, a valuation price deviation of - 0.01%, and a transaction scale of 81970000 yuan [6] 3.4 Tracking of Commercial Financial Bond Transactions - Bonds such as "23 Agricultural Bank of China Three - Rural Bond", "24 Bank of China (Hong Kong) Bond 01BC", and "23 Jiangnan Rural Commercial Bank Three - Rural Bond" were traded, with different remaining terms, valuation price deviations, and transaction scales. For instance, "23 Agricultural Bank of China Three - Rural Bond" had a remaining term of 0.44 years, a valuation price deviation of 0.01%, and a transaction scale of 50220000 yuan [7] 3.5 Tracking of Bonds with a Transaction Yield Higher than 5% - Bonds including "21 Gemdale 04", "20 Zunhe 01", and "24 Liaoning Fangda MTN001" had a transaction yield higher than 5%, with different remaining terms, valuation price deviations, and transaction scales. For example, "21 Gemdale 04" had a remaining term of 0.27 years, a valuation price deviation of 0.03%, and a transaction scale of 10760000 yuan [8] 3.6 Distribution of Credit Bond Transaction Valuation Deviations on the Day - The changes in credit bond valuation yields were mainly distributed in the [- 10, - 5), [- 5,0), (0,5], and (5,10] intervals, with corresponding bond numbers and transaction scales [10] 3.7 Distribution of Non - financial Credit Bond Transaction Terms on the Day - The transaction terms of non - financial credit bonds were mainly distributed between 0.5 years and 5 years, with different transaction scales and proportions of discounted transactions in each interval [12] 3.8 Distribution of Tier 2 and Perpetual Bond Transaction Terms on the Day - The transaction terms of Tier 2 and perpetual bonds were mainly distributed between 1 year and 5 years, with different transaction scales and proportions of discounted transactions in each interval [15] 3.9 Discounted Transaction Proportion and Transaction Scale of Non - financial Credit Bonds in Each Industry - Different industries had different average valuation price deviations and transaction scales for non - financial credit bonds. The electronics industry had the largest average valuation price deviation [18]

Group 1: Investment Ratings - No information provided on the report's industry investment rating Group 2: Core Views - As of December 12, controlling drawdown is the main strategic goal recently. In a market with slow rises and sharp falls in the past month, the focus is on drawdown control rather than achieving excess returns through duration + band operations [2][12] - Last week (December 8 - December 12), bond - type ETFs had a net inflow of 2.95 billion yuan, with credit - bond ETFs having a net inflow of 5.37 billion yuan, while interest - rate bond ETFs and convertible - bond ETFs had net outflows of 960 million yuan and 1.46 billion yuan respectively. Bond ETF net values are marginally recovering [3][16] - As of December 15, 2025, compared with the previous week, more than half of the non - financial and non - real - estate industrial bonds saw their yields rise, real - estate bond yields generally increased, and financial bond yields showed differentiation among bond types [4][18] - The trading preference for ultra - long - term credit bonds has not improved. The number of transactions of general credit bonds with a maturity of over 7 years remains at a low level, and the lack of spread protection space weakens investors' motivation [5][20] - In terms of the issuance pricing of local government bonds, the average issuance rate of 10 - year local bonds in the latest week was 2.05%, slightly up from the previous week. The average coupon rates of new 20 - year and 30 - year local bonds were above 2.45%, at a relatively high level within the year. The long - end spreads remain high [6][23] Group 3: Summary of Each Section Quantitative Credit Strategy - As of December 12, the cumulative excess returns of the short - end sinking strategy for urban investment bonds, the bullet strategy for commercial financial bonds, and the sinking strategy for securities firm bonds reached 5bp, 4.4bp, and 1.5bp respectively, while those of other medium - and long - term strategies were less than 5bp. The cumulative excess return of the urban investment dumbbell portfolio, which performed well in the previous two months, dropped to a low of - 25.7bp in the past four weeks. The sinking strategy of the financial bond heavy - position portfolio outperformed the corresponding duration strategy by more than 12bp in cumulative returns [2][12] ETF Strategy - Last week (December 8 - December 12), bond - type ETFs had a net inflow of 2.95 billion yuan. Credit - bond ETFs, interest - rate bond ETFs, and convertible - bond ETFs had net inflows of 5.37 billion yuan, net outflows of 960 million yuan, and net outflows of 1.46 billion yuan respectively. Compared with the previous week, their cumulative unit net value weekly growth rates were + 0.05%, + 0.08%, and + 0.20% respectively [3][16] Coupon Asset Heat Map - As of December 15, 2025, compared with the previous week, more than half of the non - financial and non - real - estate industrial bonds saw their yields rise. Except for private - placement bonds of private enterprises within 1 year, the yield adjustments of other varieties were less than 4BP. Real - estate bond yields generally increased, with the yields of non - perpetual bonds within 1 year rising by more than 5BP. Financial bond yields showed differentiation among bond types, with the yields of commercial financial bonds within 3 years mainly rising, bank sub - debt valuations generally recovering, and the performance of securities firm sub - debt being better than that of ordinary bonds [4][18] Ultra - long Credit Bond Tracking - The trading preference for ultra - long - term credit bonds has not improved. This week (December 8 - December 12, 2025), the number of transactions of general credit bonds with a maturity of over 7 years remained at a relatively low level of around 300. The spread between the most actively traded 7 - 10 - year industrial bonds and 20 - 30 - year treasury bonds is only 19.9bp, which further weakens investors' motivation [5][20] Local Government Bond Supply and Trading Tracking - In the latest week, the average issuance rate of 10 - year local bonds was 2.05%, slightly up from the previous week. The average coupon rates of new 20 - year and 30 - year local bonds were above 2.45%, at a relatively high level within the year. The long - end spreads of local government bonds remain high, with the average spread of bonds with a maturity of 10 years and above being higher than 20bp [6][23]

Group 1 - The simulated portfolio's returns have continued to rebound, with the exception of some secondary bond-heavy portfolios, while other credit style strategies have not outperformed their corresponding interest rate styles [3][17][22] - In the interest rate style portfolio, the secondary ultra-long and mixed barbell strategies showed significant rebounds, with weekly returns of 0.16% and 0.13% respectively [3][19] - In the credit style portfolio, the secondary ultra-long and mixed barbell strategies led with returns of 0.29% and 0.17% respectively [3][19] Group 2 - The average weekly return of the credit style time deposit heavy portfolio increased by 9.7 basis points to 0.06%, while the cumulative return since the fourth quarter has been lower than the corresponding interest rate style [3][22] - The city investment heavy portfolio's average return rose by 21 basis points to 0.07%, with bullet strategies achieving a return of 0.11%, outperforming short-end and barbell strategies [3][22] - The average return of the secondary capital bond heavy portfolio increased to 0.14%, with rebounds in secondary sinking and mixed barbell strategies at 0.15% and 0.17% respectively, but these rebounds were insufficient to offset previous losses [3][22] Group 3 - The credit style portfolio's coupon rates have shown signs of recovery, particularly in the bank subordinated bond heavy portfolio, which has a competitive yield in absolute terms [4][29] - The annualized yields for the secondary perpetual bond duration strategy are 2.19% and 2.23%, approximately 39 basis points away from the year's low [4][29] - The contribution from coupon income ranges from 20% to 90%, with most of the week's returns coming from capital gains [4][29] Group 4 - In the past four weeks, controlling drawdown has become the main strategy objective, with short-end sinking and commercial bank bond portfolios still showing positive cumulative excess returns [5][33] - The cumulative excess returns for city investment short-end sinking, commercial bank bullet, and broker bond sinking portfolios are 5 basis points, 4.4 basis points, and 1.5 basis points respectively, while other medium to long-term strategies have accumulated less than 5 basis points [5][33] - The city investment barbell strategy, which performed well in the previous two months, has seen its cumulative excess return drop to -25.7 basis points over the past four weeks [5][33] Group 5 - The trading direction for 4 to 5-year long-term credit bonds may show divergence, with some medium to long-term duration strategies lacking excess returns [6][36] - The short-end time deposit strategy's excess return turned negative this week, while the city investment sinking strategy showed a slight positive deviation from the benchmark [6][36] - The excess returns for ultra-long strategies have risen to their highest level since late October, with city investment, industry, and secondary ultra-long strategies recording 9.4 basis points, 11.1 basis points, and 29.7 basis points respectively [6][36]

1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Core Views of the Report - In 2026, the overall supply of credit bonds is expected to increase, with a total net financing of 3.13 trillion yuan, up 330.5 billion yuan from 2025. Industrial bonds will be the main contributor, with a net financing of 2.5 trillion yuan [1][9]. - The regulatory tightening on urban investment platforms will continue in 2026, and the net financing of urban investment bonds is expected to shrink further to -416.3 billion yuan. The net financing of non - bank institutional bonds is expected to increase to 44.29 billion yuan. The net financing of commercial bank financial bonds is expected to be close to 2025, at 24.43 billion yuan, and the net financing of bank secondary and perpetual bonds may drop to 36.44 billion yuan [1][10][19]. - In the week of 2025/12/1 - 12/5, the yields of credit bonds increased across the board. Non - financial credit bonds performed better than financial bonds, and among financial bonds, 10 - year brokerage sub - bonds performed best. Looking ahead, credit bonds may show a volatile trend, and a coupon strategy is recommended [2][24]. 3. Summary by Relevant Catalogs 3.1 2026 Credit Bond Supply Estimation - Overall, in 2026, driven by the growth of industrial bond net financing, the supply of credit bonds is expected to increase. Industrial bonds are the main contributor to supply, with a net financing of 2.5 trillion yuan, an increase of 468.6 billion yuan from 2025 [9][15]. - Urban investment bonds: Due to continued strict supervision, the net financing is expected to shrink to -416.3 billion yuan, a decrease of 212.4 billion yuan from 2025 [10]. - Non - bank institutional bonds: With the expected recovery of the equity market, the full implementation of the I9 standard, and high refinancing pressure, the net financing is expected to reach 44.29 billion yuan, an increase of 11.97 billion yuan from 2025 [10]. - Commercial bank financial bonds: Under the policy guidance of淡化 "scale concept", the net financing is expected to be 24.43 billion yuan, close to 2025 [19]. - Bank secondary and perpetual bonds: Affected by factors such as state - owned bank capital injection, debt replacement, and the substitution of TLAC bonds, the net financing is expected to be 36.44 billion yuan, a decrease of 46.3 billion yuan from 2025 [19]. 3.2 Credit Bond Yield Overview - In the week of 2025/12/1 - 12/5, credit bond yields increased across the board. Non - financial credit bonds outperformed financial bonds, and among financial bonds, 10 - year brokerage sub - bonds performed best [24]. - Urban investment bonds generally showed a feature that the longer the duration, the greater the increase in yield. The 10 - year bonds had the largest average increase of 7bp [24]. - Industrial bonds: High - rating and short - duration bonds had a significantly lower average increase in yield than other types of bonds [24]. - Financial bonds: The increase in yield was generally greater than that of general credit bonds of the same term, and short - duration bonds had a smaller increase than medium - and long - duration bonds [25]. 3.3 Primary Market 3.3.1 Issuance Volume - In the week of December 1 - 5, 2025, the issuance scale of credit bonds decreased both month - on - month and year - on - year. The net financing decreased month - on - month and increased year - on - year. The net financing of urban investment bonds, industrial bonds, and financial bonds decreased by 4 billion yuan, 74.2 billion yuan, and 37.9 billion yuan respectively month - on - month [35]. 3.3.2 Issuance Cost - The average issuance interest rate of credit bonds increased. The average issuance interest rate of urban investment bonds decreased by 1.4bp month - on - month, while that of industrial and financial bonds increased by 15.8bp and 4.6bp respectively [41]. 3.3.3 Issuance Term - The average issuance term of credit bonds decreased month - on - month. The average issuance terms of urban investment bonds, industrial bonds, and financial bonds decreased by 0.13 years, 0.02 years, and 0.19 years respectively [45]. 3.3.4 Cancellation of Issuance - In the week of December 1 - 5, 2025, the number of credit bond cancellations increased month - on - month, while the scale decreased. Nine bonds were cancelled, an increase of 2 from the previous week, and the total cancellation scale was 3.738 billion yuan, a decrease of 0.479 billion yuan [47]. 3.4 Secondary Market 3.4.1 Trading Volume - The trading volume of all types of credit bonds decreased compared with the previous week, and the trading volume of industrial bonds decreased by more than 50 billion yuan [53]. - In terms of remaining term, the trading terms of urban investment and industrial bonds extended, while the trading term of bank secondary capital bonds shortened [53]. 3.4.2 Trading Liquidity - This week, the turnover rates of industrial and financial bonds decreased, while that of urban investment bonds remained flat. Among different terms, the turnover rates of different types of bonds showed different trends [56]. 3.4.3 Spread Tracking - This week, the spreads of urban investment bonds narrowed for most bond types, except for 1 - year, 10 - year, and 5 - year AA + and AA(2) bonds. The spreads of bank secondary and perpetual bonds widened across the board, and the spreads of brokerage sub - bonds mostly widened, while those of insurance sub - bonds widened across the board [64][70][72]. 3.5 Weekly Hot Bonds Overview - Based on qeubee's bond liquidity scores, the top 20 urban investment bonds, industrial bonds, and financial bonds in terms of liquidity are selected for investors' reference [74]. 3.6 Credit Rating Adjustment Review - According to domestic rating agencies, this week, the debt rating of 1 bond was upgraded, and there was no downgrade of debt ratings [80].

Investment Rating - The report maintains a "Recommended" investment rating for the banking industry [2] Core Insights - The banking sector is experiencing a significant adjustment in long-term bonds, with a projected interest rate increase of 25-42 basis points, aligning with the "asset shortage" logic [14][15] - There is an ongoing demand for banks to realize floating profits from bond markets, particularly as the high base from the previous year's Q4 is expected to exert greater pressure on profit realization this year [14][15] - The report outlines three scenarios for revenue growth in 2025, indicating that banks may need to sell bonds worth approximately 0.20 trillion to 1.14 trillion yuan depending on the revenue growth target [15][19] Summary by Sections Section 1: Floating Profit Realization and EVE Indicator Impact - The report discusses the ongoing pressure for banks to realize floating profits in December, with expectations of significant bond sales to support stable performance [14][15] - It highlights the need for banks to manage duration risk effectively, as the current structure of liabilities is shortening, which may impact stability [16][17] Section 2: Loan and Bond Yield Comparison - The report provides insights into the yield comparison between loans and bonds, indicating a need for banks to adjust their strategies in response to changing market conditions [8] Section 3: Deposit Rate Tracking - The report tracks changes in deposit rates, noting adjustments made by specific banks to their deposit rates, which may influence overall funding costs [6] Section 4: Bill Discounting Volume and Price Tracking - The report analyzes the trends in bill discounting, indicating a significant drop in short-term bill rates while highlighting seasonal patterns in the market [24][25] Section 5: Central Bank Dynamics and Market Rate Tracking - The report details the central bank's operations, including reverse repos and liquidity management, which are crucial for maintaining market stability [25][26] Section 6: Government Debt Financing and Fiscal Strength Tracking - The report discusses the government's debt financing activities and their implications for fiscal policy, emphasizing the need for careful monitoring of future fiscal measures [26] Section 7: Interbank Certificate of Deposit Tracking - The report notes a positive net financing position for interbank certificates of deposit, indicating a shift in funding strategies among banks [28]