Core Viewpoints - The bond market is currently under pressure due to fundamental challenges and a loose monetary environment, with concerns about supply-demand mismatches being a primary issue. However, there is an expectation for a temporary alleviation of these pressures in Q1 2026, leading to a potential downward trend in bond yields, possibly reaching a low for the year [4][8] - The market is characterized by a "strong expectation but weak reality" scenario, where economic performance is not aligning with financial market optimism. Despite a strong equity market, the underlying economic fundamentals remain weak, which could provide support for the bond market as expectations adjust [10] - The coordination between monetary and fiscal policies is expected to strengthen, with fiscal measures likely taking the lead and monetary policy providing support. This collaboration is crucial for maintaining a stable bond market environment [17][18] Group 1: Market Support Factors - **Support Factor One: Strong Expectation, Weak Reality** The economic performance is currently low, with insufficient effective demand impacting production. Historical trends show that equity market uptrends are usually linked to fundamental improvements, but this time, the equity market is rising despite ongoing downward pressures on the economy [10][11] - **Support Factor Two: Monetary and Fiscal Coordination** The fiscal policy is expected to be the main driver, with monetary policy acting in support. The issuance of government bonds is anticipated to be front-loaded in Q1 2026, with a focus on longer maturities, which will require careful coordination with monetary policy [17][18] - **Support Factor Three: Anticipation of Monetary Easing** There is an expectation for interest rate cuts and reserve requirement ratio reductions in Q1 2026, which could lead to a favorable environment for bond yields to decline. Historical patterns suggest that such easing typically occurs at least once a year [26][27] Group 2: Investment Strategy - **Investment Strategy: Combination of Short-Medium Term Credit Bonds and Long-Term Rate Bonds** A "barbell" strategy combining short to medium-term credit bonds with long-term rate bonds is recommended. Historical data indicates that a 10 basis point decline in the 10-year government bond yield is likely, which would favor long-term bonds despite their higher volatility [30][31] - **Perspective One: Historical Experience Reference** Based on historical data, the 10-year government bond yield is expected to decrease by approximately 10 basis points in Q1 2026, with long-term bonds showing strong performance but higher volatility compared to short to medium-term credit bonds [30][31] - **Perspective Two: Scenario Hypothesis Simulation** Assuming a 10 basis point decline in the 10-year government bond yield, the total returns for long-term bonds are expected to outperform, although they are less resilient to rising interest rates. In contrast, short to medium-term credit bonds are projected to provide better total returns with a stronger safety cushion [39][40]

Core Viewpoint - The bond market in China for 2025 is characterized by a "volatile" main line amidst complex internal and external environments, with a typical "top-down" fluctuation pattern observed throughout the year [1] Group 1: Market Dynamics - The 10-year government bond yield fluctuated within a range of approximately 30 basis points, failing to establish a single trend direction [1] - Key variables such as "tariff disturbances," "anti-involution policies," and "central bank bond purchase operations" have segmented the market rhythm [1][2] - The interaction between policy expectations and market dynamics has become increasingly intricate, with frequent shifts testing investors' ability to interpret policy intentions [2] Group 2: Performance of Different Maturities - The performance of various maturities throughout the year reflects the ongoing tug-of-war between bullish and bearish forces, with different dominant logics at each stage [3] - Early-year positive data pushed the yield curve into a "bear flattening," while spring tariff shocks triggered a brief bull market [3] Group 3: Credit Market Evolution - The credit bond market is evolving from a simplistic "identity label" approach to a deeper examination of companies' cash flow and debt repayment capabilities [4] - The pricing logic of credit bonds is shifting towards a focus on the issuer's operational cash flow and debt service capacity, indicating a new normal in credit assessment [4] Group 4: Future Outlook - The bond market is expected to play a dual role in enhancing its infrastructure and understanding new interest rate trends in a complex macroeconomic landscape [5][6] - A "moderately loose" monetary policy is anticipated to continue, with a more flexible and efficient operational focus, leading to potential downward pressure on short-term bond yields [6] Group 5: Investment Strategy - In the face of increasing differentiation and competition, it is recommended to build a stable investment portfolio with high-grade assets in the short to medium term while capturing trading opportunities in long-term rate bonds [7] - The bond market's ongoing volatility is seen as a catalyst for eliminating outdated paradigms and fostering new insights, emphasizing the importance of returning to value fundamentals [7]

Core Concept - The article emphasizes the importance of understanding the "collaboration" between assets in investment allocation, which is mathematically represented by "correlation" [3][4]. Asset Allocation Principles - Ideal investment portfolios should consist of assets with varying correlations: assets with a correlation close to +1 move together, those with a correlation close to -1 move inversely, and those with a correlation close to 0 operate independently [4]. - The modern portfolio theory proposed by Nobel laureate Harry Markowitz suggests that scientific diversification can significantly reduce risk without sacrificing returns [4]. Mathematical Framework - For perfectly negatively correlated assets (correlation of -1), the allocation ratio should be inversely proportional to their volatility. If two funds have the same volatility, equal allocation is appropriate [5][7]. - If the volatilities differ, the allocation should favor the asset with lower volatility. For example, if Fund A has a volatility of 10% and Fund B has 30%, the optimal allocation would be 75% in Fund A and 25% in Fund B [7]. - For assets with a correlation close to 0, the allocation ratio should be inversely proportional to the square of their volatility. This allows for optimization of the risk-return profile even among uncorrelated assets [10][13]. Investment Insights - Including negatively correlated assets in a portfolio can effectively reduce overall volatility. While perfectly negatively correlated assets are rare, seeking low or negatively correlated assets remains a valid strategy for optimizing investment portfolios [9]. - The article illustrates that even with uncorrelated assets, appropriate weight allocation can enhance the risk-return ratio. For instance, a combination of five uncorrelated assets can reduce volatility significantly compared to individual assets [15]. Addressing Concerns about Returns - The article argues that proper asset allocation does not diminish returns; rather, it can stabilize and enhance them. The key is to select high-performing assets rather than diversifying for the sake of it [17]. - Examples provided include combining U.S. stocks with A-shares, both of which have long-term annualized returns of around 8-10%, resulting in a stable combined return while reducing volatility [17]. Practical Guidelines for Portfolio Construction - Step 1: Diversify across major asset classes such as stocks (high long-term returns, high volatility), bonds (stable returns, low volatility), and commodities (inflation hedge) [21]. - Step 2: Diversify by region and strategy, investing in various markets and styles to mitigate risks [21]. - Step 3: Regularly rebalance the portfolio to maintain the desired asset allocation, selling portions of assets that have appreciated significantly and buying those that have declined [21].

Core Insights - The essence of stock investment returns is derived from the intrinsic return rate of assets, which is based on fundamental and valuation analysis [1] - The current investment strategy emphasizes a barbell approach, focusing on low-volatility dividend stocks for defense and key sectors like internet and non-ferrous metals for offense [1] - The necessity for short-term monetary policy adjustments appears to be decreasing, but the fundamental win rate for bond assets remains [1] Investment Strategy - The investment manager does not base returns on predictions of market, competitors, or policy changes, but acknowledges their impact on short-term asset prices [1] - A diverse underlying asset selection is crucial, incorporating different style factors such as growth and value [1] - The current portfolio is underweight in low-volatility dividend and quality dividend sectors, with a focus on business model certainty and valuation cost-effectiveness [1] Asset Allocation - The defensive side of the portfolio continues to favor low-volatility dividend stocks as a solid defensive asset [1] - On the offensive side, there is a focus on leading companies in the internet sector, non-ferrous metals, and a small number of cyclical industries, with future opportunities tied to industry supply-demand fundamentals and improving industry conditions [1] - Long-duration bonds remain a good allocation choice under the barbell strategy, although the overall yield potential has significantly narrowed compared to last year, necessitating careful consideration of risk-reward ratios [1]

Core Viewpoint - The cost-effectiveness of long-term interest rate bonds has improved recently as the equity market sentiment has warmed up, leading to a narrow fluctuation in the bond market [1] Group 1: Market Trends - The bond market has entered a phase of narrow fluctuations, with 10-year and 30-year government bonds struggling to break previous lows [1] - Credit bonds and local government bonds have shown relatively strong performance, indicating a shift in investor preference during uncertain benchmark interest rate conditions [1] Group 2: Investment Insights - The compression of yield spreads has become a less significant obstacle in the current market environment [1] - From a comparative perspective, the cost-effectiveness of long-term interest rate bonds has seen a recovery [1]