Group 1 - The report highlights the significant underperformance of long-term bonds in December 2025, attributed to systematic reductions in holdings by brokerages, funds, and pension funds, which collectively sold 250.2 billion long-term bonds from November 20 to December 31, 2025 [1] - The report identifies three main factors suppressing long-term bonds in the second half of 2025: high expectations for the stock market leading to large sell-offs of long-term bonds, the central bank's delay in lowering policy interest rates resulting in limited bond purchases, and expectations of punitive redemption fees causing a decline in the scale of actively managed pure bond funds [1] - The supply of long-term bonds, particularly ultra-long bonds, has increased significantly since 2018, with net issuance of government bonds rising from 4.77 trillion in 2018 to 13.85 trillion in 2025, an increase of 2.56 trillion from the previous year [1][2] Group 2 - The report suggests that the demand for ultra-long bonds primarily comes from life insurance companies, which have increased their stock investment ratios since 2025, potentially reducing future demand for ultra-long bonds [1] - It is recommended that measures be taken to address the supply-demand imbalance in ultra-long bonds, including controlling the issuance duration of government bonds and encouraging insurance funds to increase their allocation to ultra-long bonds [1] - The report notes that the current yield on 30-year government bonds is over 40 basis points higher than the low point in 2025, raising the cost of issuing long-term bonds and increasing fiscal interest payment pressure [1][2] Group 3 - The report indicates that the conditions for further reductions in policy interest rates may now be in place, as the central bank has maintained a stable policy rate while the U.S. Federal Reserve has cut rates by a total of 75 basis points in the second half of 2025 [1][2] - The new regulations on public fund sales, effective December 2025, are expected to stabilize the scale of bond funds by significantly reducing redemption fees and sales service fees, which lowers the cost of investing in bond funds [2] - The report emphasizes the potential for a rebound in long-term bonds, suggesting that the current high yields present a compelling investment opportunity, particularly for 3-5 year capital bonds to capture coupon income [2]

1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Report Core View The current economy may still be under pressure, with the core contradiction of economic operation focusing on "the co - existence of the drag from the adjustment of old growth drivers and the growth of new ones." The short - term pressure on consumption and investment corresponds to the low - growth trend of fiscal revenue and expenditure. The demand side may remain under pressure, and if consumption and investment continue to be weak, it may affect the Q4 economic growth rate, which is expected to slow down compared to Q3. The real estate market is still at the bottoming stage, and residents may maintain a cautious attitude towards consumption in the short term. The fiscal operation shows the characteristics of "low revenue growth and differentiated central and local expenditures." The economic and fiscal situation aligns with the policy deployment of the 2025 Central Economic Work Conference. The economy may show a weak recovery next year, and the pressure on fiscal revenue and expenditure balance may continue [2][85]. 3. Summary by Related Catalogs 3.1 Macro News - **Fiscal Revenue and Expenditure**: In the first 11 months of 2025, the national general public budget revenue was about 20.1 trillion yuan, with a year - on - year increase of 0.8%. In November, it was about 1.4 trillion yuan, a year - on - year decrease of 0.02%. The general public budget expenditure in November was 2.3 trillion yuan, a year - on - year decrease of 3.71%, with the decline narrowing by 6.07 pct compared to the previous month. Tax revenue in the first 11 months was about 16.5 trillion yuan, a year - on - year increase of 1.8%. In November, tax revenue increased by 2.8% year - on - year, while non - tax revenue decreased by 10.8% year - on - year, with the decline narrowing by 22.13 pct compared to the previous month. In terms of expenditure, central expenditure increased by 4.9% year - on - year in November, while local expenditure decreased by 5.1% [10][12][16]. - **Consumption, Investment, and Foreign Trade**: In November, the total retail sales of consumer goods were 4.4 trillion yuan, a year - on - year increase of 1.3%, with the growth rate dropping by 1.6 pct compared to the previous month. From January to November, fixed - asset investment decreased by 2.6% year - on - year. Infrastructure investment, manufacturing investment, and real estate development investment from January to November decreased by 1.1%, increased by 1.9%, and decreased by 15.9% respectively year - on - year. In November, the total import and export value was 3.9 trillion yuan, a year - on - year increase of 4.1%. Exports were 2.3 trillion yuan, a year - on - year increase of 5.7%, and imports were 1.6 trillion yuan, a year - on - year increase of 1.7% [22]. - **US Economic Data**: In November, the number of new non - farm jobs in the US increased by 64,000, higher than the Dow Jones expectation of 45,000. The CPI in November increased by 2.7% year - on - year, lower than the market expectation of 3.1%. The core CPI increased by 2.6% year - on - year, the lowest level since early 2021 and also lower than the market expectation of 3% [26]. 3.2 Meso - level High - frequency Data - **Consumption**: As of December 14, the average daily retail volume of passenger car manufacturers was 67,000 vehicles, a year - on - year decrease of 16.8%, and the average daily wholesale volume was 62,000 vehicles, a year - on - year decrease of 22.4%. As of December 5, the total retail volume of three major household appliances was 784,000 units, a year - on - year decrease of 24.7%, and the total retail sales were 1.63 billion yuan, a year - on - year decrease of 46.1%. As of December 19, the total box - office revenue of national movies in the past 7 days was 68,810,800 yuan, a year - on - year increase of 95.4% [28][31]. - **Transportation**: As of December 14, the port container throughput was 6.589 million twenty - foot equivalent units, a year - on - year increase of 7.4%. As of December 19, the average subway passenger volume in first - tier cities in the past 7 days was 3.9086 million person - times, a year - on - year increase of 2.1%. As of December 14, the postal express delivery volume was 4.13 billion pieces, a year - on - year decrease of 0.3%, and the delivery volume was 4.02 billion pieces, a year - on - year decrease of 1.3%. The railway freight volume was 79.935 million tons, a year - on - year decrease of 2.1%, and the highway truck traffic volume was 54.345 million vehicles, a year - on - year decrease of 2.1% [38][41]. - **Industrial Production**: As of December 17, the blast furnace operating rate of major steel enterprises was 76.1%, a year - on - year increase of 0.9 pct. As of December 18, the average operating rate of asphalt was 21.0%, a year - on - year decrease of 1.0 pct. As of December 18, the operating rate of soda ash was 82.9%, a year - on - year increase of 1.0 pct, and the PVC operating rate was 77.3%, a year - on - year decrease of 1.0 pct. As of December 19, the average operating rate of PX was 88.5%, and the average operating rate of PTA was 74.1% [46][50]. - **Real Estate**: As of December 19, the total commercial housing transaction area in 30 large - and medium - sized cities in the past 7 days was 251,400 square meters, a year - on - year decrease of 25.2%. As of December 12, the second - hand housing transaction area in 9 sample cities was 148,500 square meters, a year - on - year decrease of 39.0% [53][58]. - **Prices**: As of December 19, the average wholesale price of pork was 17.5 yuan/kg, a year - on - year decrease of 24.1% and a 2.6% decrease compared to 4 weeks ago. The average wholesale price of vegetables was 5.9 yuan/kg, a year - on - year increase of 17.6% and a 3.9% increase compared to 4 weeks ago. The average wholesale price of 6 key fruits was 7.6 yuan/kg, a year - on - year increase of 6.1% and a 6.6% increase compared to 4 weeks ago. The average price of thermal coal at northern ports was 744 yuan/ton, a year - on - year decrease of 5.1% and a 10.9% decrease compared to 4 weeks ago. The average spot price of WTI crude oil was 56.2 US dollars/barrel, a year - on - year decrease of 19.9% and a 6.0% decrease compared to 4 weeks ago. The average spot price of rebar was 3,208.9 yuan/ton, a year - on - year decrease of 4.3% and a 1.6% increase compared to 4 weeks ago. The average spot price of iron ore was 803.2 yuan/ton, a year - on - year increase of 0.1% and a 0.5% decrease compared to 4 weeks ago. The average spot price of glass was 13.4 yuan/square meter, a year - on - year decrease of 18.0% and a 2.1% decrease compared to 4 weeks ago [61][63]. 3.3 Bond and Foreign Exchange Markets - **Money Market Rates**: On December 19, the overnight Shibor was 1.27%, a decrease of 0.07 BP compared to December 15. R001 was 1.35%, an increase of 0.51 BP compared to December 15; R007 was 1.51%, an increase of 0.25 BP compared to December 15. DR001 was 1.27%, a decrease of 0.34 BP compared to December 15; DR007 was 1.44%, a decrease of 0.27 BP compared to December 15. IBO001 was 1.33%, an increase of 0.41 BP compared to December 15; IBO007 was 1.46%, a decrease of 1.50 BP compared to December 15 [68]. - **Bond Yields**: On December 19, the yields of 1 - year, 5 - year, 10 - year, and 30 - year treasury bonds were 1.36%, 1.60%, 1.83%, and 2.23% respectively, a decrease of 3.1 BP, 2.5 BP, 0.8 BP, and 2.2 BP respectively compared to December 12. The yields of 1 - year, 5 - year, 10 - year, and 30 - year China Development Bank bonds were 1.58%, 1.80%, 1.97%, and 2.40% respectively, a decrease of 3.0 BP, 3.1 BP, 1.8 BP, and 0.4 BP respectively compared to December 12. The yields of 1 - year, 5 - year, and 10 - year local government bonds were 1.54%, 1.78%, and 2.05% respectively, a decrease of 0.4 BP, an increase of 0.1 BP, and a decrease of 0.5 BP respectively compared to December 12. The yields of 1 - month and 1 - year AAA and AA + inter - bank certificates of deposit were 1.62%, 1.64%, 1.64%, and 1.67% respectively, a decrease of 0.2 BP, 2.6 BP, 0.2 BP, and 2.6 BP respectively compared to December 12 [72][73]. - **International Bond Yields**: As of December 19, 2025, the yields of 10 - year treasury bonds in the US, Japan, the UK, and Germany were 4.16%, 2.02%, 4.53%, and 2.98% respectively, a decrease of 3 BP, an increase of 7 BP, an increase of 3 BP, and an increase of 4 BP respectively compared to December 12 [80]. - **Exchange Rate**: On December 19, the central parity rate and spot exchange rate of the US dollar against the Chinese yuan were 7.06 and 7.04 respectively, a decrease of 88 and 144 pips respectively compared to December 12 [82]. 3.4 Investment Suggestions The bond market in 2026 may perform better than expected. Since the second half of the year, the bond market has often deviated from the fundamentals and is dominated by institutional behavior. It is expected that the policy interest rate will be cut by about 20 BP in 2026, with a 10 - BP cut likely in Q1. In the long - term, the yield of 30 - year treasury bonds is closely related to the population structure, and it is predicted that the yield of 30 - year treasury bonds will fall below 2% in 2026. Different from the unanimous bullish sentiment of institutions a year ago, many non - bank institutions are currently bearish on the bond market, so the bond market in 2026 may perform better than expected. Currently, it is recommended to focus on the allocation value of 5 - year bank capital bonds and ultra - long - term interest - rate bonds [4][86].

1. Report Industry Investment Rating - No industry investment rating is provided in the report [1] 2. Report Core Viewpoints - The Central Economic Work Conference held from December 10 - 11 adjusted macro - policy implementation paths and key task statements. Fiscal policy will continue to be active, and monetary policy will be moderately loose with more flexible use of tools. Key tasks in multiple fields have changed significantly [2][10] - In 2026, the bond market may perform better than expected. Policy rates are predicted to drop by about 20BP, with a possible 10BP cut in Q1. The 30Y Treasury yield may fall below 2%. Currently, it is recommended to focus on the allocation value of 5Y bank capital bonds and ultra - long - term interest - rate bonds [4][85] 3. Summary by Directory 3.1 Macro News - The Central Economic Work Conference pointed out that China's economy faces challenges such as external impacts and domestic supply - demand imbalance. Macro - policies will be more proactive, with new implementation paths and adjustments in key tasks across various fields [2][10] - In November 2025, the stock of social financing increased by 8.5% year - on - year. The balance of M1 was 112.9 trillion yuan (+4.9% yoy), M0 was 13.7 trillion yuan (+10.6% yoy), and M2 was 337.0 trillion yuan (+8% yoy) [4][26] - The Federal Reserve cut the federal funds rate target range by 25 basis points to 3.5% - 3.75% on December 10, the third consecutive 25 - basis - point cut since September [4][30] 3.2 Meso - level High - frequency Data 3.2.1 Consumption - As of December 7, the daily average retail and wholesale volume of passenger cars decreased by 32.3% and 39.8% year - on - year respectively. As of December 12, the 7 - day national box office revenue increased by 190.6% year - on - year. As of December 5, the retail volume and total of three major home appliances decreased by 24.7% and 46.1% year - on - year respectively [36][41] 3.2.2 Transportation - As of December 7, port container throughput increased by 5.9% year - on - year, postal express pick - up and delivery volume increased by 5.4% and 4.0% respectively, while railway freight volume and highway truck traffic decreased by 2.0% and 0.4% respectively. As of December 12, the average subway passenger volume in first - tier cities increased by 3.7% year - on - year [43][46] 3.2.3 Industrial Operating Rate - As of December 10 - 12, the operating rates of various industries showed mixed trends. For example, the blast furnace operating rate of major steel enterprises increased by 0.3pct year - on - year, while the asphalt operating rate decreased by 1.0pct year - on - year [48] 3.2.4 Real Estate - As of December 12, the 7 - day commercial housing transaction area in 30 large - and medium - sized cities decreased by 33.7% year - on - year. As of December 5, the second - hand housing transaction area in 9 sample cities decreased by 49.0% year - on - year [53][56] 3.2.5 Prices - As of December 12, the average wholesale prices of pork, northern port thermal coal, and WTI crude oil decreased year - on - year and compared to four weeks ago. The average wholesale prices of vegetables and 6 key fruits increased year - on - year and compared to four weeks ago [60] 3.3 Bond and Foreign Exchange Markets - On December 12, overnight Shibor and some short - term interest rates decreased. Most Treasury yields declined, while the yields of some government - backed bonds and local government bonds showed mixed trends. The yields of US, Japanese, British, and German 10 - year Treasury bonds increased. The US dollar - RMB exchange rate decreased [69][71][77] 3.4 Investment Recommendations - Due to changes in macro - policies and key tasks at the Central Economic Work Conference and the current situation of the bond market, it is expected that the bond market will perform better in 2026. It is recommended to focus on the allocation value of 5Y bank capital bonds and ultra - long - term interest - rate bonds [83][85]

Report Industry Investment Rating - The industry rating is not explicitly mentioned in the report regarding the bond market. However, the general tone seems to suggest a cautious view on the bond market, with potential risks and adjustments ahead [27]. Core View of the Report - The bond market has been weakening recently with a divergence in bond varieties. Both bulls and bears in the bond market are currently confused. The report presents multiple reasons for both bullish and bearish outlooks on the bond market and concludes that the risk in the bond market has not been eliminated, with potential for further adjustments within the year [2][6]. Summary by Related Catalogs Bullish Reasons - **Bond Supply Mismatch in Q4**: This year, the fiscal bond issuance has been front - loaded, with the remaining quotas for national and local bonds in Q4 at 21.5% and 22.1% respectively, lower than last year's 26.3% and 30.5%. Q4 is also the insurance "opening - up" period, leading to increased allocation demand from insurance companies [7]. - **Favorable Economic Data**: The corporate loans in the social financing data have weakened for two consecutive months, and the economic data in August was generally weak. The production slowed down, with the industrial added - value growth rate in August at 5.2%, down 0.5pct from the previous month. The fixed - asset investment also slowed down. Weak economic data is beneficial for the bond market [8]. - **Monetary Policy and Treasury Bond Transactions**: With a weakening economy, weak social financing and credit, and the Fed's rate cut, there is an increased probability of rate cuts and reserve requirement ratio cuts in Q4. The adjustment of the 14 - day reverse repurchase operation by the central bank implies a potential rate cut. The discussion on government bond issuance management and central bank's treasury bond transactions also provides room for speculation [12]. Bearish Reasons - **Nominal GDP and Re - inflation**: The "anti - involution" policy has a positive impact on inflation. PPI has shown signs of bottoming out. Nominal GDP may rise due to the narrowing of the GDP deflator, which could be unfavorable for bond yields. Expectations of inflation are also increasing [16]. - **Mutual Fund Redemption Chain Reaction**: Due to weakening profitability and the potential redemption fee, mutual bond funds may face scale shrinkage, which could lead to liquidity and valuation spread pressures on certain bond varieties favored by mutual funds [20]. - **Weak Monetary Policy Coordination**: The monetary policy has not adjusted policy rates. To cooperate with the "anti - involution" policy, interest rates may not be further reduced. The desired growth rate of loans may decline, and the current interest rate level may be appropriate [23]. - **Sustained Breakthrough in the Equity Market**: The equity market has shifted from a situation of "no fundamental support" to "having performance support from specific sectors". This may lead to a long - term trend of capital flowing from the bond market to the equity market [24]. Outlook for Monday - Two news events, a news conference on the "14th Five - Year Plan" and a positive phone call between the Chinese and US presidents, may boost risk appetite. The bond and equity markets are likely to have a "risk - on" trading pattern. The risk in the bond market has not been eliminated, and there is still room for adjustment within the year [27].

Report Summary 1. Industry Investment Rating No industry investment rating is provided in the report. 2. Core View Standing at the end of July and looking forward to August, investors' sentiment for going long in the bond market has declined. The consensus has shifted from going long on long - term and ultra - long - term bonds to medium - and short - term interest - rate bonds. The money market and the equity market have become the core concerns of investors, and their preference for medium - and low - grade urban investment bonds and local government bonds has weakened marginally [1]. 3. Summary by Questionnaire Items Q2: 10 - year Treasury Yield Upper and Lower Limits in August - Regarding the lower limit, 45% of investors think it will likely fall within 1.60% - 1.65% (inclusive), 18% believe it will break below 1.60% (mostly in the 1.55% - 1.60% range), and about 37% think it will exceed 1.65%. - Regarding the upper limit, 51% of investors think it will likely fall within 1.75% - 1.80% (inclusive), about 14% think it will exceed 1.80%, and only 4% think it will be below 1.70%. - Conclusion: Investors' expectation of a rise in the 10 - year Treasury yield is increasing, but they are still cautious about it breaking key points. The bond market may face some emotional shocks in August, but the macro - fundamentals are in a weak recovery, the money market is stable, and the expectation of loose monetary policy remains unchanged [10]. Q3: 30 - year Treasury Yield Upper and Lower Limits in August - Regarding the lower limit, over 73% of investors think it will fall within 1.80% - 1.90% (inclusive), 18% think it will break above 1.90%, and only 8% think it will be below 1.80%. - Regarding the upper limit, about 56% of investors think it will fall within 1.95% - 2.00% (inclusive), 24% think it will be in the 2.00% - 2.05% range, and about 9% think it will break above 2.05%. - Conclusion: Since July, the 30 - year Treasury yield has been rising, reaching a maximum of 1.998%. Investors' expectation of a further increase in the 30 - year Treasury yield is not high [14]. Q4: Economic Trend in the Third Quarter - 31% of investors are relatively optimistic about the economic trend in the third quarter, believing it will show "year - on - year recovery and month - on - month growth exceeding the seasonal level". - 24% think it will be "year - on - year recovery and month - on - month growth in line with the seasonal level". - 34% think it will be "year - on - year recovery and month - on - month growth weaker than the seasonal level". - 31% are relatively pessimistic, believing it will be "both year - on - year and month - on - month decline". - Conclusion: External factors may have some impact on the macro - economy in the third quarter, but the overall expectation of investors has not changed much, with the proportion of pessimistic expectations rising from 30% to 31% [15]. Q5: Next Reserve Requirement Ratio Cut and Interest Rate Cut Timing - Regarding reserve requirement ratio cuts, 43% of investors think there will be no more cuts this year, 47% think the next cut may be in the third quarter, and 9% think it will be postponed to the fourth quarter. - Regarding interest rate cuts, 41% of investors think there will be no cuts this year, 41% think the next cut may be in the fourth quarter, and 19% think it will be in August or the third quarter. - Conclusion: In July, investors' expectations for reserve requirement ratio and interest rate cuts have gradually weakened. Most investors tend to postpone potential cuts to a more distant policy window rather than August [17]. Q6: Impact of the Recent "Anti - Involution" Policy on the Bond Market - 71% of investors think the "anti - involution" policy will be negative for the bond market. - 43% think it will strengthen the stock - bond seesaw effect and suppress the bond market through capital diversion. - 28% think it will push up industrial product prices, intensify inflation expectations, and be negative for the bond market. - 17% think the policy's effect is limited, and the bond market is still dominated by fundamentals. - Conclusion: The "anti - involution" policy has some impact on the macro - economy and the bond market, but no obvious trend is seen. Most investors think it will be negative for the bond market, but some think the impact is short - term [18]. Q7: Bond Market Trend in August - 28% of investors think the bond market will strengthen in August, with 13% expecting a bullish steepening of the yield curve and 15% expecting a bullish flattening. - 31% of investors think the bond market will be weak. - 26% of investors think the bond market will show a divergence between the short - end and the long - end, with the short - end strong and the long - end weak. - 2% of investors think the short - end will be weak and the long - end will be strong. - Conclusion: Investors' consensus has shifted to going long on short - term bonds. The proportion of those thinking the bond market will strengthen is significantly lower than in June. Investors' judgments on the bond market are relatively evenly distributed [22]. Q8: Current Bond Market Operation - 33% of investors think they should hold cash and wait to add positions after the market corrects to the expected level. - 20% of investors think they can start adding positions now. - 19% of investors think they should reduce the duration to control risks. - 14% of investors think they should take appropriate profits and reduce positions. - 14% of investors think they should keep the positions basically stable. - Conclusion: Most investors are neutral in practice. Holding cash and waiting is the mainstream view. The proportion of those thinking they can start adding positions has increased, indicating potential buying power in the bond market [23]. Q9: Most Favored Bond Types in August - Compared with June, investors' preference for ultra - long - term and long - term interest - rate bonds has decreased, while their preference for medium - and short - term interest - rate bonds has increased significantly. - The popularity of local government bonds and medium - and low - grade urban investment bonds has decreased. - Conclusion: Investors' consensus has shifted from long - term and ultra - long - term interest - rate bonds to medium - and short - term interest - rate bonds, and their preference for negotiable certificates of deposit has also increased [29]. Q10: Main Logic of Bond Market Pricing in August - Monetary policy, the money market, and the performance of the equity market have become the core concerns of bond investors. - Investors' attention to fiscal policy and government bond issuance remains the same, while their attention to fundamentals and institutional behavior games has decreased. - Conclusion: The central bank's monetary policy stance and the money market trend are still the factors that investors focus on. This month, investors' attention to the equity market has increased significantly, while their attention to institutional behavior games and fiscal policy has decreased [30].