1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - In the week from January 5 - 9, 2026, the ultra - long credit bonds showed a downward trend. Affected by multiple factors such as the stock - bond seesaw effect, the withdrawal of impulsive funds, and the supply pressure of long - term bonds, the yields of ultra - long credit bonds generally increased. The number of outstanding ultra - long credit bonds with yields above 2.8% increased to 174 [2][13]. - The supply of ultra - long industrial bonds dropped to a low point. This week, the total supply of new ultra - long credit bonds was 5.03 billion, with issuers highly concentrated in urban investment platforms. The interest rate of new ultra - long urban investment bonds rose to around 3%, but the subscription enthusiasm remained low [3][22]. - The ultra - long credit bond index continued to decline. The sharp rise of the stock market this week impacted the bond market pricing. Most medium - and long - term general credit bond full - price index prices fell, with the price of AA + credit bonds over 10 years dropping by 0.05%. However, the trading activity of ultra - long credit bonds rebounded, and the average trading yield of general credit bonds over 10 years rose above 2.65%. After the New Year, the number of trading transactions of ultra - long credit bonds rebounded to over 350 [4][29][31]. - From a more microscopic perspective, the spread between 7 - 10 - year active ultra - long credit bonds and government bonds of similar maturities was 58bp this week, with good coupon value. In late January, the opening of amortized - cost bond funds may bring local benefits to the ultra - long credit bond market [5][43]. 3. Summary According to the Directory 3.1 Stock Market Characteristics - Ultra - long credit bonds declined. Affected by multiple factors, the yields of ultra - long credit bonds generally increased, and the number of outstanding ultra - long credit bonds with yields above 2.8% increased to 174 compared with last week [2][13]. 3.2 Primary Issuance Situation - The supply of ultra - long industrial bonds dropped to a low point. This week, the total supply of new ultra - long credit bonds was 5.03 billion, with issuers highly concentrated in urban investment platforms [3][22]. - In terms of issuance interest rates, in the context of overall bond market fluctuations and fragile investor sentiment, the market demanded a higher risk premium for ultra - long credit bonds. The interest rate of new ultra - long urban investment bonds rose to around 3% this week. Despite the continuous increase in coupon rates, the subscription enthusiasm for ultra - long urban investment bonds remained low, and market concerns about the uncertainty of ultra - long urban investment bonds with maturities spanning the debt - resolution node intensified [3][22]. 3.3 Secondary Trading Performance - The ultra - long credit bond index continued to decline. The sharp rise of the stock market this week impacted the bond market pricing. Most medium - and long - term general credit bond full - price index prices fell, with the price of AA + credit bonds over 10 years dropping by 0.05% [4][29]. - The trading activity of ultra - long credit bonds rebounded. The supply pressure of government bonds and the warming of stock market sentiment continuously disturbed long - term interest rates. The secondary - market trading yield of ultra - long credit bonds continued to fluctuate. The average trading yield of general credit bonds over 10 years rose above 2.65%. After the New Year, the number of trading transactions of ultra - long credit bonds rebounded to over 350, partly driven by the market pattern of "credit is better than interest rates" this week. Due to the overcrowded trading of short - and medium - term credit products, some asset allocations shifted to the long - end [4][31]. - Corresponding to the secondary - market trading performance, the TKN ratio of general credit bonds over 10 years rebounded to 60%. The certain high coupon attracted funds to flow from more volatile long - term interest - rate bonds to credit bonds [4][36]. - In terms of investor structure, wealth - management funds have the motivation to extend the duration to increase returns, but their behavior is constrained by net - value fluctuations and tends to be cautious during the interest - rate increase period. Public funds with stronger trading attributes have recently shown a continuous attitude of reducing or holding off on long - duration credit bonds. Traditional allocation players such as insurance companies have承接, but the intensity has weakened, and they may reserve more positions for newly issued local government bonds [4][41].

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

Core Viewpoint - The impact of duration volatility on perpetual bonds may outweigh tail credit issues, indicating a need for careful monitoring of market dynamics and credit conditions in the banking sector [1][2]. Group 1: Market Overview - In 2025, the issuance of bank subordinated bonds remained stable, with a marginal increase in net issuance, although there was structural differentiation, particularly a year-on-year decline of 205 billion in net issuance from joint-stock banks, which is the main reason for the contraction in secondary capital bonds [1][2]. - The spread of bank perpetual bonds in the secondary market transitioned from convergence to differentiation, with high-rated short-duration bonds seeing a decline in spreads as funding costs stabilized, while low-rated long-duration bonds faced upward spread volatility due to market fluctuations [1][2]. Group 2: Key Changes in the Market - The net issuance trend reflects a divergence in bank balance sheet expansion and contraction, with joint-stock and rural commercial banks showing a significant slowdown in expansion, while city commercial banks still have a certain demand for expansion despite relatively low capital adequacy ratios, leading to a trend of increasing net issuance of subordinated bonds [2]. - The instability on the configuration side has resulted in insufficient resilience of long-duration subordinated bonds, with a notable overreaction in valuations since Q4 2025, partly due to the impact of new interest value-added tax regulations and concerns over the high elasticity of perpetual bonds and redemption regulations [2]. - Tail risks are evolving, with potential shifts from credit risk exposure accumulated during earlier expansions to insufficient core capital due to new loans/credit bonds in a contracting environment, which may weaken expectations for future issuance of perpetual bonds, leading to two choices: not redeeming or redeeming without reissuing, with the latter being more likely [2]. Group 3: 2026 Market and Strategy Outlook - For 2026, the issuance from large state-owned banks is expected to remain stable at around 900 billion, with an additional 250 billion in TLAC bonds, while small and medium-sized banks are projected to issue between 600 billion to 700 billion in subordinated bonds [3]. - Investment strategies for 2026 should focus on the stability of the liability side and the redemption aspect of credit, with limited spread space for short-duration bonds and sufficient spread for long-duration bonds, although instability on the liability side may continue to disrupt the market [3]. - The current high spreads of bonds provide a favorable configuration cost-performance ratio, but in a challenging market environment, the need for precise timing and wave management in trading will increase, with investment opportunities likely arising from adjustments following market sentiment shocks [3].

Group 1 - The core view of the report emphasizes that duration volatility may have a greater impact on perpetual bonds than tail credit issues [1] - The 2025 bank subordinated bond market showed stable issuance with differentiated spreads, where the net issuance of tier 2 capital bonds decreased significantly due to a drop in issuance from joint-stock banks [7][9] - The report identifies three main changes behind the stable issuance and high volatility in the bank subordinated bond market: the divergence in bank balance sheet expansion, instability in the configuration of long-term subordinated bonds, and the dual nature of tail risks regarding redemption [11][19][24] Group 2 - In the primary market, the issuance of bank subordinated bonds is expected to remain stable, with state-owned banks projected to issue around 9,000 billion yuan in perpetual bonds and 2,500 billion yuan in TLAC bonds in 2026 [27][28] - The secondary market strategy suggests focusing on the stability of the liability side and the redemption aspect of credit, with limited spread space for short-duration bonds and sufficient spread for long-duration bonds, but ongoing instability may disrupt the market [30][41] - The report anticipates that tail risks will continue to exist, particularly for small and medium-sized banks, which may face pressures leading to either non-redemption or non-renewal of bonds [33][35]

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]

Summary of Conference Call on Credit Bond Market Outlook for 2026 Industry Overview - The conference call focused on the credit bond market outlook for 2026, indicating a neutral to bearish sentiment with expectations of rising interest rates. The ten-year government bond yield is projected to range between 1.7% and 2.1% [1][3][18]. Key Points and Arguments Market Environment - The credit bond market is expected to face a structural asset shortage, with demand dynamics potentially reshaped by new fee regulations. The net supply in the primary market is anticipated to remain high, particularly with significant issuance of technology innovation bonds and positive net financing for private enterprises [2][3][6]. - The overall credit risk is manageable despite some localized risk events, such as defaults and extensions in the real estate sector. The impact of these events on the broader credit bond market is considered limited [5][22]. Supply and Demand Dynamics - The net supply of industrial bonds is expected to remain elevated due to improved corporate profitability and capital expenditure needs. Conversely, the net supply of urban investment bonds may slightly turn negative [1][4]. - Public fund structures are shifting, with an increase in the burden on market value-based bond funds, potentially leading to a diversion of funds to ETFs or separate accounts, which will affect demand for various bond types [6][7]. Institutional Preferences - Public funds, particularly market value-based funds, are facing increased burdens, with a total scale of 8.6 trillion yuan as of Q3 2025. This may lead to significant impacts on the demand for certain bond types, especially those with lower credit ratings [7][12]. - Insurance companies are expected to reduce their allocation to credit bonds, favoring equity investments instead. The expansion of the southbound trading channel may also reduce demand for long-term domestic bonds [14][15]. Investment Strategy - The focus for 2026 should be on the certainty of coupon payments rather than capital gains, with a preference for short to medium-term bonds (especially those with maturities of three years or less) [20][22]. - There are opportunities in medium-term, high-grade credit bonds, particularly in the wake of new fee regulations and potential interest rate cuts, which could create short-term trading opportunities [20][19]. Risk Assessment - The overall sentiment towards credit risk remains cautious, with a need to monitor potential localized risk exposures and their implications for the broader market [5][16]. - The credit spread for bonds is currently low, with limited room for compression in the medium term. Long-term bonds may face widening pressures due to shifts in market dynamics and reduced insurance capital allocation [18][19]. Other Important Insights - The carbon bond fund's entry into the open market is expected to significantly impact the credit bond market, potentially leading to increased inflows and enhanced credit performance [10]. - The current landscape for credit ETFs is around 500 billion yuan, with expectations for continued growth driven by policy support and increased participation from various institutional investors [11]. - The anticipated expansion of the wealth management market, driven by changes in bank deposit rates and fee regulations, is expected to support growth in credit investments, particularly in high-grade, short-duration assets [12][13]. Conclusion - The overall outlook for the credit bond market in 2026 is cautious, with expectations of high supply and a shift in demand dynamics. The focus should be on identifying structural opportunities and adapting strategies to the evolving market landscape [22][23].

Group 1 - The simulated portfolio returns have rebounded this week, with most credit style portfolios outperforming interest rate style portfolios. The weekly returns for secondary ultra-long and city investment ultra-long strategies were 0.34% and 0.28% respectively, while credit style portfolios saw returns of 0.65% and 0.41% for the same strategies [2][14][15] - The recovery in returns has shifted from interest rate and medium-long duration strategies to ultra-long bond strategies. The average weekly return for credit style time deposit heavy portfolios increased by 3.6 basis points to 0.12%, the highest since August, while city investment heavy portfolios rose to 0.22%, an increase of approximately 12.1 basis points [2][16] - The average return for secondary capital bond heavy portfolios increased by nearly 20 basis points, with the secondary bond duration and mixed duration strategies showing weekly returns nearly equal to the ultra-long strategy. The secondary bond bullet strategy has shown a faster recovery, with cumulative negative returns since the third quarter narrowing to -0.36% [2][16] Group 2 - In terms of return sources, the coupon income from various strategy portfolios has declined, while the contribution from capital gains has increased. Among mainstream strategies, the coupon income for secondary bond bullet and duration strategies fell by more than 0.04 basis points, while city investment bonds and bank perpetual bonds maintained annualized coupon rates around 2.24% and 2.26% respectively [3][25] - The capital gains contribution for credit style portfolios accounted for most of the returns this week, with coupon contributions falling within the range of 5% to 30%, further compressing and increasing concentration compared to the previous week [3][25] Group 3 - Over the past four weeks, medium-long duration secondary perpetual strategies have shown cumulative returns at the forefront. The cumulative excess returns for perpetual bond duration, secondary bond bullet, and secondary bond duration strategies were 13 basis points, 11.2 basis points, and 11.1 basis points respectively [4][29] - The medium-long duration secondary perpetual bond strategy has rebounded significantly, but its volatility exceeds that of the downshift strategies. The cumulative return for the secondary bond downshift strategy reached 9.2 basis points, demonstrating both low volatility and strong recovery advantages [4][29] - From a strategy duration perspective, medium-long duration secondary perpetual bonds and ultra-long strategies exhibit stronger offensive attributes. The short-end time deposit strategy's excess returns have dropped to the lowest in three months, lacking aggressiveness in a bond bull market [4][32]

Report Industry Investment Rating No relevant content provided. Core View of the Report - After the bond market correction, seize the credit coupon allocation opportunities, and the strategy of "short - to medium - term coupon + moderate credit spread widening" has high certainty. The coupon income - to - risk ratio of short - to medium - term (within 3 years) credit bonds has significantly improved, while long - term (over 5 years) credit bonds face triple pressures and weak trading opportunities [1][4][30]. Summary by Directory 1. Urban Investment Bonds: There is Still a Large Space for Coupon Asset Mining - As of September 11, 2025, the scale of outstanding urban investment bonds was about 15.48 trillion yuan, with public urban investment bonds accounting for 53%. The scale of urban investment bonds with a valuation above 2.3% was 4.42 trillion yuan, accounting for 28.54% of the total [4][8]. - In public urban investment bonds, provinces like Qinghai, Guizhou, Liaoning, Yunnan, and Shaanxi have high weighted average valuation yields. In private urban investment bonds, Guizhou, Qinghai, and Yunnan have weighted average valuation yields above 2.9% [8][9]. - Based on the distribution of public urban investment bonds with a valuation above 2.3%, different regions are divided into four categories according to the proportion of high - valuation bonds. From the perspective of the coupon strategy, different regions are recommended for different durations [10][11][12]. 2. Financial Bonds: Focus on Bank Subordinated Bonds and Insurance Perpetual Bonds - As of September 11, 2025, the scale of outstanding financial bonds was about 15.18 trillion yuan. The scale of financial bonds with a valuation above 2.3% was 1.68 trillion yuan, accounting for 11% of the total [4][18]. - Bank subordinated bonds and insurance perpetual bonds are recommended. High - valuation bonds in bank secondary capital bonds are concentrated in 3 - 5 - year AA+/AA/AA - and over - 5 - year AAA/AAA - varieties; in bank perpetual bonds, they are concentrated in 3 - 5 - year AA+/AA and within - 5 - year AA - varieties; in insurance perpetual bonds, they are concentrated in 3 - 5 - year AA+/AA varieties [18][19]. 3. Industrial Bonds: The Utilities and Transportation Sectors Can Try Longer Durations - As of September 11, 2025, the scale of outstanding non - default industrial bonds was about 13.99 trillion yuan. The scale of industrial bonds with a valuation above 2.3% was 2.85 trillion yuan, accounting for 20.36% of the total [4][22]. - Industries such as transportation, utilities, non - bank finance, comprehensive, real estate, and building decoration have a bond stock scale of over one trillion yuan. Real estate and non - bank finance industries have relatively high average valuation yields. In terms of liquidity, industries such as commerce and retail, transportation, coal, and utilities are more active [22]. - Real estate has the highest proportion and largest absolute scale of high - valuation bonds, mainly concentrated in within - 3 - year AA/AA(2) varieties. Long - term (over 7 years) high - valuation industrial bonds are mainly concentrated in AAA+/AAA/AAA - grades, with more stocks in industries such as comprehensive, utilities, and transportation [22]. 4. Credit Bond Selection Strategy: Focus on the Value of Short - to Medium - Term Coupons after the Correction - After the market correction, the yield of some credit bonds has fallen to a more attractive range. The coupon income - to - risk ratio of short - to medium - term (within 3 years) varieties has significantly improved, and the "short - to medium - term coupon + moderate credit spread widening" strategy has high certainty [30]. - Long - term (over 5 years) credit bonds face triple pressures of "low trading volume, weak liquidity, and concentrated disturbing factors", and the market sentiment is cautious. Some credit bonds with a remaining term of 1 - 3 years/3 - 5 years and a valuation greater than 2.3% are selected for investors' reference [30][31].

Group 1: Market Overview - The bond market experienced unexpected volatility leading up to the May Day holiday, with the 10-year minus 1-year government bond yield spread narrowing to a new low of 16 basis points, and the 10-year government bond yield dropping to 1.62% [3][11] - The rapid decline in yields was driven by three catalysts: easing liquidity around the holiday, market anticipation of the April PMI readings, and active trading of 30-year government bonds [11][3] - The discussion among investors shifted from concerns about holding bonds over the holiday to whether to chase rising yields [11][3] Group 2: Credit Bond Market Analysis - The performance of credit bonds has been weaker compared to government bonds, with adjustments in credit bonds generally more pronounced than in interest rate bonds, raising questions about their value proposition [25][55] - Factors contributing to the cautious outlook on credit bonds include weak trading sentiment, insufficient duration chasing, low turnover rates, and a flattening yield curve [25][55][31] - The average yield on key credit bonds has shown a balanced contribution from coupon income and capital gains, but as absolute yields approach lower levels, coupon contributions are expected to decline [25][37] Group 3: Bank Subordinated Debt - Bank subordinated debt, often referred to as a "yield amplifier," has shown conservative market behavior, with yields on 4-year AAA- subordinated bonds dropping to 1.95% [4][49] - The lack of aggressive participation from institutional investors in the subordinated debt market has been noted, particularly as yields fell below 2.5% [4][49] - The correlation between insurance net purchases and subordinated debt performance has weakened, indicating a shift in investment strategies [52][49] Group 4: Investment Strategies - The report suggests that maintaining a larger allocation to short- to medium-term bonds is a relatively stable strategy, especially for accounts with unstable liabilities [55] - For accounts with stable liabilities, extending the duration of city investment bonds to 3-5 years is recommended to mitigate potential scarcity in credit bond issuance later in the year [55] - The overall strategy should focus on high liquidity assets to reduce exposure to liquidity risks, particularly in the context of a flattening yield curve [31][55]

Report Industry Investment Rating - Not provided in the content Core Viewpoints - In a high - volatility bond market environment, balancing offense and defense is a challenge for investors. Although credit bonds lack effective coupon protection and have lower liquidity, coupon - type assets still have value for increased holdings. By decomposing the comprehensive return of credit bonds into holding return and capital gain and conducting stress tests on individual bonds, investors can adjust their allocation strategies [2][10]. - The increase in bond market volatility places higher requirements on investors' liability - side management and trading timing capabilities [3][15]. Summary by Relevant Catalogs I. Individual Bond Stress Test Tool - **Bond Market Volatility Background**: Since last September, the bond market has experienced multiple fluctuations. After the "924" new policy impulse, it entered a cycle of redemptions and sharp declines. In November, with the release of loose capital signals, it entered a pre - emptive trading phase. After the New Year, the bond market was affected by factors such as tight capital in January, strong equity performance and improved economic fundamentals in February, and volatile equity trends and tariff factors in March. As of last Friday, the proportion of outstanding credit bonds with yields below 2.2% rose to 71%, and those below 2.0% reached 38%, leading to high volatility in the bond market [9]. - **Analysis of Credit Bonds**: Credit bonds currently lack effective coupon protection and have lower liquidity than interest - rate bonds. The window period for market trends is short under high volatility. To balance liquidity and return enhancement, coupon - type assets are still worth increasing. Decomposing the comprehensive return of credit bonds into holding return and capital gain can help judge entry and exit points [2][10]. - **Stress Test of Urban Investment Bonds**: In April, the absolute yield of urban investment bonds dropped to a low level. Assuming purchase at the current coupon rate and holding for two weeks or three months, in the two - week holding scenario, low - coupon urban investment bonds' comprehensive return can hardly withstand capital gain losses. In the three - month holding scenario, for a 50bp yield increase, the comprehensive return of 1 - year urban investment bonds is still positive; for a 20bp increase, some AA and AA(2) term varieties can also achieve coupon coverage of losses [2][10]. - **Stress Test of Bank Sub - debt**: The stress test results of bank sub - debt are less favorable. Whether holding for two weeks or three months, even when facing a 20bp yield increase, the comprehensive return of Tier 2 capital bonds and perpetual bank bonds is difficult to maintain in the positive range [3][13].