1. Report Industry Investment Rating No information provided in the text. 2. Core Viewpoints of the Report - The bond market in the second quarter may continue to oscillate and recover. The term spread is expected to gradually decline, and the credit spread may fluctuate at a low level. It is recommended to continue leveraging, selecting rides, and appropriately extending the duration. The 10 - year Treasury bond yield is expected to fall to around 1.6% - 1.7% around the middle of the year [5][36]. 3. Summary by Relevant Catalogs 3.1 March Bond Market: Oscillation, Widened Term Spread, and Narrowed Credit Spread - In March, the long - term bonds oscillated and adjusted. The term spread widened, and the credit spread narrowed. The yields of 10 - year and 30 - year Treasury bonds increased by 4.2bps and 7.9bps respectively to 1.82% and 2.35%. The current 30 - year and 1 - year Treasury bond spread is as high as 113.1bps, and the spread between 30 - year and 10 - year bonds is 53.5bps, almost the highest level since 2023. Except for 3 - year and 5 - year Tier 2 capital bonds, the spreads between other credit bonds and the same - term China Development Bank bonds are basically around or within the 20th percentile since 2023 [1][9]. - The current bond market differentiation and the weak long - term bond situation are the result of multiple factors. Rising prices have led to market concerns about inflation pressure pushing up interest rates, which is more evident in long - term bonds. The short - end is relatively stable due to loose funds. The instability of long - term bonds has led institutions to shorten the duration, and the decrease in inter - bank deposit rates has made wealth management and money market funds increase bond allocation, reducing short - term credit rates [1][9]. 3.2 Fundamentals: Continued Stability with Increased K - shaped Differentiation - The Spring Festival factor has boosted the economic data from January to February to some extent, and the economy has basically remained stable. After excluding the Spring Festival factor, the real recovery momentum of the economic fundamentals has not significantly strengthened. The Spring Festival in 2026 was late, driving up data such as industrial added value and exports. The Spring Festival factor increased exports by 6.1 percentage points. In March, affected by the delayed resumption of work after the festival, relevant economic data may decline [2][13]. - In March, the manufacturing PMI rebounded to 50.4%, returning above the boom - bust line. There is a certain seasonality in the rebound, and the current level is comparable to the seasonal average. The service and construction industry PMIs also rebounded, but their absolute levels are low. Overall, the economy shows a stable trend [17]. - The rise in prices has not effectively translated into investment and financing demand and interest rate - rising pressure. PPI is likely to turn positive in March, but the rise has significant structural characteristics. The PPI of industries related to non - ferrous metals and crude oil has rebounded significantly, while the PPI of mid - and downstream industries is still under pressure. The rebound in PPI has not led to a comprehensive improvement in corporate profits. There is a significant K - shaped differentiation in corporate profits, with only a few industries seeing large profit increases, while the profit growth rates of other industries are still low, resulting in low financing demand [21]. - In April, the financing demand may decline seasonally, which will further widen the bank's asset gap and increase the bond - allocation demand. The issuance of government bonds in April is usually the lowest in a year, and the social financing scale remains low, resulting in insufficient asset supply. On the demand side, the gap between bank deposit growth and loan growth is still large, and the weak loan trend may continue, which will drive banks to increase bond - allocation [23]. 3.3 Short - term Factors Drive the Intensification of Long - Short - end Differentiation, which May Not Last in the Long Run - The recent long - short - end differentiation is mainly due to short - term factors such as inflation sentiment and end - of - quarter bank institutional behavior adjustments, rather than fundamental and capital factors. Inflation itself should not trend - wise push up long - term interest rates. The current long - term bond's greater reaction to prices is inconsistent with historical experience. The current price increase is mainly due to imported factors, which will not increase corporate investment and financing demand and has no trend - wise impact on interest rates [33]. - After the end of the quarter, the bank's bond - allocation power will recover, and combined with loose funds, the market may continue to recover. The previous bond market adjustment before the end of the quarter was mainly related to bank institutional behavior. Banks may sell bonds to realize floating profits at the end of the quarter and adjust their bond - holding structures due to end - of - quarter indicator assessments. After the end of the quarter, the bank's bond - allocation demand is expected to recover, and the short positions of trading institutions will be closed, driving the market to recover [34].

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - In late Q1, institutional behavior in the bond market has changed. The allocation disk has strong buying power, while funds and wealth management products are relatively weak. The "fixed - income +" products are facing significant redemption pressure, and the bond market strategy focuses on short - term 3 - 5y term spread compression and long - term opportunities after over - decline [1][3][4]. 3. Summary by Directory 3.1 First Quarter: Characteristics of Bond Buying by Various Institutions 3.1.1 Overall Bond Buying by Institutions in Q1: Strong Allocation Disk, Weak Funds and Wealth Management - **Allocation Disk**: Large banks significantly increased net purchases of government bonds over 5y. Small and medium - sized banks increased net purchases of 30y government bonds and 20y local bonds. Insurance companies, driven by dividend - paying insurance, included 3 - 5y Tier 2 and perpetual bonds in their top five holdings [13]. - **Trading Disk**: Securities firms' net purchases were in line with seasonality, with a significant reduction in duration, more allocation to 1y interest rates and Tier 2 and perpetual bonds, and reduction of ultra - long bonds. Funds still focused on credit coupons, increasing the proportion of 1 - 5y credit and Tier 2 and perpetual bonds [13]. - **Bank Wealth Management**: In Q1, due to the priority of "deposit rush" tasks in the banking system, the scale growth of bank wealth management was weak, and the net purchases of direct investment and entrusted investment in the secondary market both increased less. In terms of structure, direct investment shortened the term, and entrusted investment increased the exploration of spreads in policy - financial bonds [14]. 3.1.2 By Institution: Insurance Enters the Allocation Window at the End of the Quarter, and Wealth Management Will Follow in Q2 - **Banks**: They have a strong demand for long - term bonds. At the end of the quarter, the pressure to realize profits is not large, and there is still a need for bond allocation in the future [18]. - **Insurance**: The "good start" funds entered the allocation window in March, and the bond - allocation progress is slower than last year, with potential for further allocation. Attention should be paid to the spread compression opportunities of ultra - long local bonds in Q2 [23]. - **Funds**: From the end of Q1 to Q2, there is usually a seasonal recovery in bond - buying power. In Q2, it is conducive to the spread compression of policy - financial bonds [25][28]. - **Wealth Management**: It is expected to see scale growth and a peak season for bond allocation in Q2. Attention can be paid to the spread compression opportunities of Tier 2 and perpetual bonds [29]. - **Securities Firms**: They continue to short - sell 30y government bonds and start to buy 50y government bonds [30]. 3.2 "Fixed - Income +" Redemption: How Big Is the Pressure? 3.2.1 Recent "Fixed - Income +" Redemption: Greater Pressure than in November 2025 and January 2026, Close to the Russia - Ukraine Conflict Period - In March, the equity market declined, and the Shanghai Composite Index fell below 4000 points, leading to a significant increase in the redemption pressure of "fixed - income +" funds. The redemption pressure is stronger than in the previous two rounds and is close to that during the Russia - Ukraine conflict [34][41]. 3.2.2 When Will the Redemption Ease? Pay Attention to the Policy - making Layer's Expectations for Market Stability and the Use of Tools - The central bank recently held a party committee meeting, showing an earlier demand to maintain the stable operation of the stock market. Looking back at the situation after the Russia - Ukraine conflict in 2022, relevant meetings and policies helped stabilize the market. The central bank has innovated a series of financial policies to support the stable operation of the capital market. In the future, attention should be paid to the changes in the "claims on other financial corporations" item [43][44][47]. 3.3 Bond Market Strategy: Focus on 3 - 5y Term Spread Compression in the Short - Term and Seize Opportunities after Over - Decline in the Long - Term 3.3.1 This Week: α Spread Compression for Bonds within 5y - This week, the short - term bonds performed well. The certificate of deposit (CD) yield dropped close to 1.5%, driving the α spread compression of bonds within 5y [48]. 3.3.2 Short - Term: Limited Downward Space for 1y Bonds, Potential for Continuous Compression of 3 - 5y Spreads - The space for 1y short - term leverage to capture interest rate spreads has been extremely compressed, and the focus of bond selection may shift to 3 - 5y bonds. CDs may fluctuate at a low level of 1.5 - 1.55% in the short term, and attention should be paid to the marginal changes in funds at the end of the quarter [51][56]. 3.3.3 Long - Term: 10y Government Bonds to Fluctuate between 1.8% - 1.85%, 30y Government Bonds' Sentiment to Stabilize, Pay Attention to Over - Decline Recovery - **10y Government Bonds**: It is expected to fluctuate in a narrow range of 1.8% - 1.85%. It is recommended to hold existing assets and gradually increase positions for incremental funds if the yield continues to rise. - **30y Government Bonds**: The core fluctuation range of the 30 - 10y active bond spread may be 40 - 50bp. Traders can pay attention to trading opportunities when the spread widens to over 50bp, and allocators can gradually enter the market when the 30y government bond yield rises above 2.3%. Attention can also be paid to the spread - mining value of 4 - 5y China Development Bank bonds, 10y China Development Bank bonds, and 20y local bonds [57][60][61]. 3.4 Interest - Rate Bond Market Review: CDs Hit a New Low, and the Yield Curve Steepened - **Funding**: The central bank's open - market operations (OMO) had a net injection, and the funding situation was balanced and loose [76]. - **Primary Issuance**: The net financing of government bonds and local bonds increased, while that of policy - financial bonds and inter - bank CDs decreased [80]. - **Benchmark Changes**: The term spreads of government bonds and China Development Bank bonds both widened [86].

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]

1. Report Industry Investment Rating - Not provided in the given content 2. Core View of the Report - This week, the bond market showed a differentiated pattern with short - term interest rates declining and long - term interest rates rising. The short - and long - term interest rate differentiation is the result of different institutional behaviors, and they will converge in the medium term. The key to the convergence lies in the monetary policy's reaction to current price increases. It is believed that the current price increase will not lead to a tightening of monetary policy, and the long - term adjustment may not be sustainable. After the end of the quarter, the market is expected to recover [1][8][20] 3. Summary by Relevant Catalogs 3.1 Bond Market Differentiation - This week, the bond market's differentiation intensified. The 1 - year Treasury bond yield dropped 0.9 bps to 1.28%, and the 1 - year certificate of deposit (CD) rate fell 1.8 bps to 1.53%. The 10 - year Treasury bond yield rose 3.3 bps to 1.81%, and the 30 - year Treasury bond yield soared 8.5 bps to 2.37%. The 5 - year AAA - second - tier perpetual bond also rose 4.7 bps in total, and the yield curve steepened significantly [1][8] 3.2 Reasons for Short - term Interest Rate Decline - Banks lack assets, leading to a continuous increase in the deposit - loan gap. From January to February, deposits increased by 520 billion yuan year - on - year, while loans decreased by 530 billion yuan year - on - year, and the loan growth rate slowed from 6.4% in December last year to 6.0% in February. Banks increase inter - bank lending, resulting in loose liquidity [2][11] - The central bank basically approves of the current loose liquidity. This week, the central bank's open - market operations had a net withdrawal of 10.11 billion yuan, and the 600 - billion - yuan repurchase was renewed with a reduced amount of 100 billion yuan. This is due to insufficient overall capital demand. After the end of the quarter, credit demand will further decline in April, maintaining loose liquidity [2][12] - The strengthening of the inter - bank deposit self - regulatory mechanism may further push down short - term interest rates. After the implementation of the mechanism in December 2024, wealth management products and money market funds increased their bond allocations. If the inter - bank deposit rate drops by 10 bps, the 1 - year joint - stock bank CD rate is expected to fall below 1.5%, and the 1 - year AAA medium - term note rate is expected to drop to around 1.55% [3][15] 3.3 Reasons for Long - term Interest Rate Increase - The intensifying conflict between the US and Iran has driven up oil prices. If the oil price remains at the current level, the PPI year - on - year may turn positive in March and rise rapidly to a high level around mid - year. The impact of price increases on long - term bonds is magnified by institutional behavior. At the end of the quarter, banks' long - term bond allocation demand slows down, and securities firms' large - scale selling drives up long - term bond interest rates [4][16] 3.4 Convergence of Short - and Long - term Interest Rates - The key to the convergence of short - and long - term interest rates lies in the monetary policy. If the price increase leads to a tightening of monetary policy, short - term interest rates will rise to converge with long - term rates. However, it is believed that the current price increase is mainly input - driven, concentrated in industries such as non - ferrous metals and energy, and will not lead to an improvement in corporate profits or an increase in financing demand. The central bank's tightening of money has little impact on globally - priced oil and precious metals, so the monetary policy is likely to remain loose [4][19] 3.5 Market Outlook and Investment Suggestions - The weak sentiment of long - term bonds is expected to ease in the medium term. After the end of the quarter, as banks' allocation power recovers and trading institutions close their short positions, the market is expected to gradually recover. In the short term, it is recommended to increase leverage, choose appropriate riding positions, and wait for the post - quarter recovery market. At that time, consider increasing the duration [5][20]

Core Viewpoint - The article emphasizes that the most challenging aspect of investing is not predicting the market but controlling one's emotions, highlighting that greed and fear are the biggest enemies of investors, while discipline and patience are the best tools [1]. Financial Market Overview - The interbank funding market is experiencing a balanced and slightly loose liquidity environment, with the central bank conducting a 245 billion yuan reverse repurchase operation, resulting in a net injection of 15 billion yuan after 230 billion yuan of reverse repos matured [3]. - The overnight funding rates have slightly decreased, with DR001 around 1.33% and DR007 around 1.47% [3]. - The stock market has seen a slight decline, influenced by ongoing geopolitical conflicts and news of a potential reduction in interbank deposit rates, which has led to some deposit rates hitting historical lows [5]. Bond Market Insights - The 10-year government bond yield opened at 1.814% and fluctuated, eventually settling at 1.807% [5]. - The bond market sentiment remained stable in the morning, with a slight decrease in yields following the news of lower deposit rates [5]. - Recent fundamental data has broken a year-long period of stagnation, with inflation data and high oil prices contributing to short-term inflation expectations remaining unproven [5]. Market Data Summary - The weighted rates for various repo codes are as follows: R001 at 1.40%, R007 at 1.51%, and R014 at 1.53%, with respective changes of -1 bp, 0 bp, and -1 bp [4]. - The trading volume for R001 was 77,204.47 million yuan, while R007 had a volume of 6,803.47 million yuan, indicating a decrease of 522.82 million yuan [4].

1. Report Industry Investment Rating There is no information about the industry investment rating in the provided content. 2. Core Viewpoints of the Report - The general deficit scale in 2026 has a limited increase. The supply of interest - rate bonds is not the core contradiction in the bond market, and it is difficult to change the long - term interest rate's oscillating pattern. However, it is beneficial for short - term bond varieties that closely follow the capital market [6][9]. - Although the overall deficit and the corresponding net supply of government bonds have a limited increase, it is difficult to bring much positive impact on bond market interest rates, especially long - term interest rates. The positive impact on the bond market, especially long - term interest rates, is relatively limited after the deficit scale is announced [6][10]. - Under the current deficit level, the supply pressure in the first half of the year is weak, and the resulting capital pressure is controllable, which is beneficial for short - term varieties. The supply peak is expected to be in the third quarter [6][11]. 3. Summary by Relevant Catalogs 3.1 Bond Market Weekly Viewpoint - The general deficit scale in 2026 has a limited increase. The supply of interest - rate bonds is not the core contradiction in the bond market, and it is difficult to change the long - term interest rate's oscillating pattern, but it is beneficial for short - term varieties [6][9]. - In 2026, the deficit rate and the new quota of special bonds are the same as last year, and the scale of special treasury bonds has a slight decline. The general deficit scale has an extremely limited increase. The general deficit scale is 11.89 trillion yuan, only 30 billion yuan more than last year, and the increase is the lowest since 2023, significantly lower than the average increase of 1.6 trillion yuan in the past three years. The net supply of government bonds is expected to be around 13.89 trillion yuan, with an increase of 30 billion yuan compared to 2025 [6][10]. - The supply pressure in the first half of the year is weak, and the capital pressure is controllable, which is beneficial for short - term varieties. The net financing in the first and second quarters is expected to be 3.53 trillion and 3.47 trillion yuan respectively, with changes of - 570.9 billion and - 222.8 billion yuan compared to the same period last year. The supply peak is expected to be in the third quarter, with the net financing of government bonds expected to be around 4.3 trillion yuan, an increase of about 530 billion yuan compared to the same period last year [6][11]. 3.2 This Week's Focus in the Fixed - Income Market - This week, China will release February CPI, PPI, and January - February export data. The United States will release February CPI and other data [15][16]. - The issuance of interest - rate bonds this week is expected to be around 757.5 billion yuan, at a high level compared to the same period [16]. - Treasury bonds: 2 coupon - bearing general treasury bonds with maturities of 1 and 2 years and scales of 175 billion and 155 billion yuan respectively; 1 general ultra - long - term treasury bond with a maturity of 50 years and a scale of 32 billion yuan; 1 discount treasury bond with a maturity of 91 days; 2 savings treasury bonds with maturities of 3 and 5 years. The total issuance scale is expected to be 442 billion yuan [18]. - Local bonds: 35 local bonds are planned to be issued, with a scale of 135.5 billion yuan, including 5 new general bonds (19.4 billion yuan), 10 new special bonds (17.7 billion yuan), 8 refinancing general bonds (55.3 billion yuan), and 12 refinancing special bonds (43.2 billion yuan) [18]. - Policy - financial bonds: The issuance scale is expected to be around 180 billion yuan [18]. 3.3 Review and Outlook of Interest - Rate Bonds 3.3.1 Last Week's Reverse Repurchase Delivery Fell to a Low Level - Last week, the net reverse repurchase withdrawal was 1.0944 trillion yuan. After the Spring Festival, the reverse repurchase delivery returned to a low level, with a total of 161.6 billion yuan. Considering the 1.256 trillion yuan due, the net withdrawal was about 1 trillion yuan [22][24]. - The capital market volume increased and the price decreased. The repurchase trading volume recovered after the Spring Festival, with the highest reaching 9.2 trillion yuan during the week, and the weekly average rose to 8.8 trillion yuan. The overnight proportion's weekly average rose to 91%. The capital price mostly declined. DR001 fluctuated around 1.3% and rose to 1.32% on Friday; DR007 gradually fell to around 1.41% compared to the previous week [24]. - The issuance of certificates of deposit increased, the proportion of long - term certificates of deposit increased significantly, and the price broke through downward. From March 2nd to March 8th, the issuance scale was 717.2 billion yuan (an increase of 263.3 billion yuan compared to the previous week), the maturity scale was 588 billion yuan (a decrease of 78.8 billion yuan compared to the previous week), and the net financing was 129.2 billion yuan (an increase of 342 billion yuan compared to the previous week) [30]. 3.3.2 The Decline of Short - and Medium - Term Interest Rates was Relatively Large - After the geopolitical conflict last week, the market's risk - aversion sentiment was strong, the stock market adjusted, and the bond market strengthened. In the second half of the week, the Two Sessions' report was basically in line with expectations. Although the bond market's expectation of further monetary easing was disappointed, the central bank stated that future easing operations were still expected. And the limited increase in the deficit strengthened the expectation of capital loosening, which was beneficial for the bond market, and bond market interest rates mostly declined [39]. - Finally, the 10 - year treasury bond and the active state - owned development bond changed by - 0.2bp and - 1.4bp respectively compared to last week, reaching 1.79% and 1.92%. In terms of yields, the 1 - year, 3 - year, 5 - year, 7 - year, and 10 - year ChinaBond treasury bond yields changed by - 3.1bp, - 1.5bp, - 0.8bp, - 0.5bp, and 0.6bp respectively compared to the previous week, reaching 1.29%, 1.36%, 1.53%, 1.66%, and 1.78%. The yields of interest - rate bonds of various maturities mostly declined, and the 1 - year state - owned development bond yield declined the most, about 6.4bp [39]. 3.4 High - Frequency Data - Production end: Most of the operating rates increased. The blast furnace operating rate decreased from 80.2% to 77.7%, the semi - steel tire operating rate increased from 34.56% to 74%, the PTA operating rate increased from 73.7% to 79.5%, and the asphalt operating rate increased from 21.4% to 23.3%. The year - on - year decline in the average daily crude steel output in late February was still large, with a reading of - 12.9% [46]. - Demand end: The year - on - year growth rates of passenger car manufacturers' wholesale and retail sales were at a high level. In the week of February 8th, the year - on - year change in passenger car manufacturers' wholesale was 46%, and the year - on - year change in retail was 54%. In the week of March 1st, the land transaction area in 100 large - and medium - sized cities recovered to 8.18 million square meters but was still lower than the same period, and the commercial housing sales area in 30 large - and medium - sized cities increased to around 1.42 million square meters, also significantly lower than the same period. In terms of export indices, the SCFI and CCFI composite indices changed by 11.7% and 0.9% respectively [46]. - Price end: The crude oil price soared. The upstream Brent futures crude oil price and WTI futures crude oil price changed by 27.9% and 35.6% respectively; the copper and aluminum prices diverged, with LME copper and LME aluminum changing by - 4.7% and 7.2% respectively; the coal price diverged, the thermal coal active contract futures settlement price was the same as last week, and the coking coal active contract futures settlement price changed by 2.3%. In the middle - stream, the building materials composite price index was basically flat, the cement index changed by - 0.3%, and the glass index changed by 2.4%. The output of rebar increased, the inventory accumulation speed was fast, and the current inventory was 6.38 million tons, and the futures price changed by 0.7%. In the downstream consumption end, the prices of vegetables, fruits, and pork changed by - 2.9%, 1%, and - 3% respectively [47].

Core Insights and Debt Market Strategy - The main trading logic this week includes limited incremental stimulus policies from the "Two Sessions," a significant rise in expectations for lower bank funding costs, and a PMI still in the contraction zone, providing marginal support for the bond market [9] - Expectations for lower bank funding costs support a stronger short-end market. The logic behind the short-end decline may extend beyond expectations of reserve requirement ratio cuts and interest rate reductions, as the market is pricing in expectations for lower bank funding costs [9][10] - The pricing in the bond market may be misaligned, with limited room for short-end speculation. The 1-year government bond yield is at a relatively low level, and the spread with DR007 has reached an extreme range, indicating potential overextension of easing expectations [9][10] Strategy Recommendations - It is advised to flatten the curve, maintain a defensive stance on the short end, and focus on opportunities in the 3-5 year range, which still has over 10 basis points of room to the take-profit point [10] - The current market scenario presents three potential scripts: 1) Spreads in the 3-5 year range compress to take-profit points before a pullback, 2) Rate cuts open up broader long positions, and 3) Overall pullback until new long opportunities arise [10] - The strategy for the upcoming market includes maintaining a defensive posture on the short end, moderately reducing positions in 1-year government bonds and city investment products, while considering a transition to 1-year AA- certificates of deposit [10] Weekly Summary - The short-end of the bond market led gains this week, with all maturities following suit. Although credit showed some upward momentum, most spreads widened, indicating potential profit-taking pressure [10] - The overall market outlook suggests a possibility of interest rate cuts and that adjustments in the bond market could present opportunities, leading to a slight bullish view in the short to medium term [10] Portfolio Recommendations - The recommended allocation for the week includes 20% in 3-year AAA-rated perpetual bonds, 30% in 5-year AAA-rated bank perpetual bonds, 30% in 1-year AA-rated certificates of deposit, and 20% in 3-year AAA-rated real estate bonds [12] - Since the beginning of 2025, the cumulative return of the weekly strategy is 3.45%, outperforming the short-term bond index return of 1.72% and the medium to long-term bond index return of 0.61% [12]

1. Report Industry Investment Rating No information provided in the content. 2. Core View of the Report - The bond market may fluctuate and strengthen, with support mainly coming from institutional investors such as banks, while trading institutions like securities firms and funds may influence the rhythm. The relative change in deposit and loan growth rates determines that institutional investors such as banks are more in need of assets this year, which sets the general direction for the bond market to strengthen. The widening gap between deposit and loan growth rates may continue, leading to the overall directional allocation of bonds by banks and a pattern of loose liquidity. The rhythm of the bond market's recovery depends more on the allocation rhythm of trading institutions. When the positions of trading institutions are low, it is suitable to increase positions; when their positions rise to a high level, it may be considered to reduce positions [6][19]. 3. Summary by Relevant Catalog 3.1 Bond Market Performance Last Week - The bond market fluctuated last week, with ultra - long bonds performing weakly. The 10 - year Treasury bond yield decreased by 1.5 bps to 1.78%, while the 30 - year Treasury bond yield increased by 2.7 bps to 2.27%. The secondary capital bonds of 3 - year and 5 - year AAA - grade had a slight adjustment, rising by 1.2 bps and 3.3 bps respectively. The 1 - year AAA certificate of deposit yield decreased by 0.5 bps to 1.58% [1][9]. 3.2 Impact of International Conflicts on the Domestic Bond Market - The intensification of international conflicts such as the attack on Iran by the US and Israel may have limited impact on the domestic bond market. On one hand, it may lead to a decline in global risk appetite and drive interest rates down as funds flow into safe - haven assets. On the other hand, it may increase global inflation pressure and push up interest rates. However, there is no clear pattern in the domestic bond market's performance after past wars. The domestic bond market is more affected by the internal economic and monetary environment, and geopolitical conflicts are indirect and non - primary influencing factors. The impact needs to be closely observed [2][10]. 3.3 Domestic Bond Market Structure - The bond market currently shows a pattern where non - bank institutions are cautious and banks are increasing their allocations. The adjustment pressure in the bond market after the Spring Festival mainly comes from non - bank institutions. Non - bank institutions' bond sales are due to subjective caution and the continuous contraction of their scale. In January, the bond fund scale decreased by 41.47 billion shares, a decline of about 4.5%. However, the non - bank positions have reached a relatively low level, and the space for further reduction is limited. Banks are facing a shortage of assets. In recent months, the deposit growth rate has been rising while the loan growth rate has been falling, especially for large banks. This leads to an asset gap, and banks need to increase bond allocations or inter - bank lending to balance the gap, which increases bond demand and supports loose liquidity [3][11]. 3.4 Persistence of Banks' Asset Shortage in the Economic Transformation Period - China is in an economic transformation period, with the slowdown of traditional economies such as infrastructure and real estate and the prosperity of new economies such as information technology and high - end manufacturing. Traditional economies have a much higher financing scale per unit of added value than new economies. For example, the loan - to - added - value ratio of the water conservancy industry is about 20%, while that of the information service industry is only about 0.27 - 0.28%. At the same time, due to the lag in the adjustment of the residents' employment structure, residents' income is under pressure, and their savings inclination increases. This may lead to a continuous slowdown in loan demand and a continuous increase in deposit growth, resulting in a continuous asset gap for banks and an increasing demand for bond allocation [4][14]. 3.5 Government Bond Supply - This year's government bond supply structure is similar to last year's and remains stable. The local bond supply of about 10 - year terms has relatively increased. The supply rhythm is similar to last year, with the net financing of government bonds in the first two months being 2.6 trillion yuan, basically the same as last year. In terms of the term structure, the proportion of local bonds with a term of over 10 years issued since the beginning of this year is 57.6%, lower than 62.5% last year, while the proportion of 10 - year bonds is 28.4%, significantly higher than 20.7% in the same period last year. The proportion of 30 - year bonds is 28.6%, still higher than 24.1% in the same period last year [5][16].

Report Industry Investment Rating - The report does not provide an industry investment rating [1] Core Viewpoints - After the New Year, the market has high expectations for a good start in the 15th Five - Year Plan, with strong profit - taking sentiment. Under the stimulus of the "Shanghai Seven Measures", the bond market fell continuously until it stopped falling on Friday. The medium - and long - term credit strategies had obvious pullbacks, while the short - end sinking strategy's net value remained stable. Looking forward, with factors such as loose capital and the opening of amortized bond funds remaining unchanged, credit bonds are still an asset that combines offense and defense. Currently, the cost - effectiveness of chasing up in the bond market has decreased, and the market is likely to fluctuate in March. There is limited room for exploration within 3Y of credit bonds, with a stronger defensive nature. It is recommended to do more sinking to build a bottom - position. There is a thickening of term spreads for many entities in the 3 - 4Y range, presenting riding opportunities. Long - term bonds over 5Y have certain attractiveness in terms of absolute returns, and institutions with strong liability - side stability can make layouts. There is a convex point around 4Y for Tier 2 and perpetual bonds, with expected considerable riding returns, combining both offense and defense [6][10] Summary by Directory 1. Credit Bond Weekly Viewpoint: Grasping Bonds with Strong Convexity in the 3 - 4Y Range - After the New Year, due to high expectations for the 15th Five - Year Plan's good start and strong profit - taking sentiment, the bond market declined under the "Shanghai Seven Measures" until Friday. Medium - and long - term credit strategies pulled back, while short - end sinking strategies' net values were stable. In the future, with favorable factors like loose funds and the opening of amortized bond funds, credit bonds are still offensive and defensive. The cost - effectiveness of chasing up in the bond market is low, and March is likely to see fluctuations. There is limited exploration space within 3Y of credit bonds, with a stronger defensive property; 3 - 4Y has riding opportunities due to thickened term spreads; 5Y+ long - term bonds are attractive for institutions with stable liabilities. Tier 2 and perpetual bonds around 4Y have convex points and expected riding returns [6][10] 2. Credit Bond Weekly Review: Overall Stable Performance of Short - and Medium - Term Credit 2.1 Negative Information Monitoring - There were no bond defaults or overdue cases, no downgrades of corporate main body ratings or outlooks, no downgrades of bond ratings, and no overseas rating downgrades from February 23 to March 1, 2026. However, there were some significant negative events for companies such as Fanhai Holdings, Sunshine City Group, and others [15][16][17] 2.2 Primary Issuance: Significantly Lower New Bond Issuance Costs - After the holiday, the new issuance of credit bonds was slow, with a large - scale net financing outflow. From February 23 to March 1, 2026, the primary issuance of credit bonds was 92.7 billion yuan, lower than the previous week before the holiday. The total repayment amount was 184.4 billion yuan, a peak in maturity in the past month, resulting in a net financing outflow of 91.7 billion yuan. No bonds were cancelled or postponed for issuance last week. The average coupon rates of AAA and AA+ grades were 1.92% and 1.97% respectively, down 11bp and 23bp week - on - week. The frequency of new AA/AA - grade bond issuance remained low [17][18] 2.3 Secondary Trading: Narrowing of Spreads for Low - Grade and Long - Term Bonds - Last week, the valuations of credit bonds of all grades and terms fluctuated slightly within ±1bp. The risk - free interest rate rose slightly, and the credit spreads narrowed by an average of 1bp, with more narrowing for low - grade and long - term bonds. The 3Y - 1Y term spreads of each grade mostly widened by 1bp, and the 5Y - 1Y AA - grade spread narrowed significantly by 4bp. The AA - AAA grade spreads narrowed across the board, with a maximum narrowing of 5bp for the 5Y spread. In terms of urban investment bond credit spreads, most provincial credit spreads narrowed slightly by 2bp last week, with Qinghai narrowing the most by 7bp. In terms of industrial bond credit spreads, most industry spreads narrowed slightly by 1bp last week, slightly underperforming urban investment bonds, and only the real estate spread widened by 5bp. Affected by the holiday, the weekly turnover rate decreased by 0.82pct to 0.97%. The real - estate companies with the largest spread widening were Times Holdings, Rongqiao, Greenland, and Xinyuan [20][26][28][29]

Group 1 - The supply and demand for certificates of deposit (CDs) are relatively friendly, supporting stable CD interest rates. Despite some disturbances in the funding environment since 2026, the overall trend of CD interest rates has remained stable, supported by both supply and demand factors [7][16]. - On the supply side, the central bank has injected a significant amount of medium to long-term liquidity, resulting in a noticeable decline in net financing of bank CDs compared to previous years. Since Q4 2025, the central bank has increased liquidity injections through tools like MLF and reverse repos, while also resuming normalized bond purchases [7][16]. - On the demand side, non-bank institutions have shown strong interest in allocating CDs, particularly insurance and wealth management products. The relative advantage of CDs over repos in a liquidity-rich environment has supported this demand [7][16]. Group 2 - Looking ahead, the downward space for CD interest rates may be limited. The central bank's use of quantity-based monetary policy tools is relatively restrained, making further declines in CD interest rates challenging. The main liquidity tools currently in use have shorter maturities, and the central bank has not employed rate cuts since May 2025 [16][30]. - There is a structural differentiation in CDs, with smaller banks facing greater challenges in reducing CD interest rates. Smaller banks typically have higher funding costs and may face demand constraints due to rating limitations. Regulatory changes may also lead to a contraction in CD demand from smaller banks [16][30]. Group 3 - The difficulty in lowering CD interest rates may significantly restrict the motivation for institutions to purchase bonds, especially as expectations for credit easing policies rise after the March Two Sessions. This could narrow the downward space for long-term bond rates, suggesting a cautious approach towards long-duration assets [30]. - In the medium term, the anticipated introduction of credit easing policies may elevate the central tendency of long-term bond rates, while government debt supply remains under pressure. This indicates potential risks for long-duration assets, while mid to short-term credit bonds may still offer attractive value [30].