Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the bond market and its dynamics, particularly in the context of recent policy changes by the central bank and macroeconomic indicators [2][3][4]. Core Insights and Arguments - The central bank has restarted government bond trading to enhance the financial function of government bonds and to serve as a pricing benchmark for the yield curve, indicating a potential intention to regulate the yield curve and assist fiscal financing [2][5]. - The fourth quarter is expected to have a favorable fundamental and supply environment for interest rate trends, although macro trends remain unclear. Short-term data may show slight weakening, which could stimulate a wide monetary policy sentiment, providing a good window for the bond market [2][6]. - The manufacturing PMI for October was reported at 49, below expectations, indicating weakening demand that may lead to a slight decline in economic data for the fourth quarter, further supporting the bond market [2][8]. - Investment strategies suggest focusing on short-term rates, which are more certain, while taking trading opportunities in long-term and ultra-long-term bonds. The yield spread between 10-year and 30-year bonds is currently at a reasonable level [2][7]. Important but Overlooked Content - The TLAC non-capital tool is designed to enhance total loss-absorbing capacity and has a repayment order between ordinary bonds and AT1/AT2 instruments. It is crucial for investors to understand the complexities and risks associated with these instruments [2][10]. - The issuance of ordinary bonds globally amounts to approximately $6 trillion, primarily used for liability supplementation, with a significant portion issued in euros [2][9]. - The impact of Deutsche Bank and Credit Suisse events on the subordinate debt market highlights the credit risks associated with AT1 instruments, emphasizing the need for investors to be cautious regarding macroeconomic conditions and individual bank performance [2][13]. Additional Insights - The bond market's performance is influenced by various factors, including seasonal effects and holiday impacts, which investors should be aware of [2][8]. - The global banking sector's capital adequacy remains high, with core Tier 1 capital ratios around 14.52%, although there are regional variations in non-performing loans [2][17]. - Chinese institutions have a relatively low participation in the offshore subordinate debt market, with a significant portion of their debt being ordinary bank debt [2][12]. - The historical context of AT1 bond conversions and write-downs illustrates the potential risks and regulatory differences across jurisdictions, which can affect investment decisions [2][14][15].

1. Report Industry Investment Rating - No information provided in the content. 2. Core Viewpoints of the Report - Among overseas bank bonds, ordinary bank bonds have the largest outstanding volume, while AT1 and AT2 are subordinated bonds with higher yields. Subordinated bonds have had many credit risk events in history, reshaping the research framework and pricing for institutional investors. Ordinary bank bonds are mainly investment - grade, and their pricing is more affected by liquidity premium, while subordinated bonds are more affected by credit risk premium. In the future, considering the overall stable fundamentals of banks and the interest - rate cut cycle, opportunities for yield decline in medium - and short - duration ordinary bonds and subordinated bonds can be focused on. Chinese banks' overseas bonds, mainly US - dollar ordinary bonds issued by large banks, have higher coupons than domestic bonds, presenting allocation opportunities [1]. 3. Summary by Relevant Catalogs 3.1 Overseas Bank Bond Overview - **Types and Attributes**: Overseas bank bonds mainly include ordinary bank bonds, TLAC non - capital instruments, AT2, and AT1 bonds. Ordinary bank bonds have the best repayment order and are used to supplement general operating funds. TLAC non - capital instruments help global system - important banks meet TLAC regulatory indicators. AT1 and AT2 are used to supplement a bank's primary and secondary capital respectively, with subordinated, redemption, write - down, or conversion clauses [12]. - **Outstanding Amount**: As of October 20, the outstanding amounts of ordinary bank bonds, TLAC non - capital instruments, AT2, and AT1 bonds were 6.4, 2.0, 0.8, and 0.5 trillion US dollars respectively [2]. - **Ordinary Bank Bonds**: They are denominated mainly in euros, with the largest outstanding volume. European countries dominate in terms of issuance, and Germany has the largest outstanding amount. From 2010 - 2025, the overall issuance scale declined, and the financing situation shifted from net repayment to mild net financing. The issuance term is mainly 1 - 7 years, and the rated bonds are mainly of A grade. The lower the rating, the higher the interest rate [18][22][30]. - **AT1 Bonds**: They are denominated mainly in US dollars, with the largest outstanding amounts in the UK and the US. The market expanded significantly after 2014 and has developed steadily since then. The net financing amount has changed with the market rhythm. The issuance coupon is affected by the interest - rate environment and credit risk events. Bonds with ratings are mainly of Ba1 grade, and the lower the rating, the higher the coupon [35][40][52]. - **AT2 Bonds**: They are mainly issued by France, the US, etc., and are denominated mainly in US dollars, euros, and Australian dollars. The issuance scale fluctuated greatly from 2010 - 2025, mainly affected by the interest - rate cycle. The net financing amount has been mainly positive but showed a downward trend. Rated bonds are mainly of Baa1 grade, and the lower the rating, the higher the interest rate [54][59][66]. - **Chinese Banks' Overseas Bonds**: As of October 21, the outstanding amount was 7.6 billion US dollars, mainly ordinary bank bonds. US dollars are the main currency, and most of the rated bonds have high credit ratings. The financing rhythm is significantly affected by cost, and the net financing amount has been negative since 2022 [69][70]. 3.2 Review and Enlightenment of Credit Risks of Overseas Subordinated Bank Bonds - **Deutsche Bank's Interest Payment Risk in 2016**: The huge loss in 2015 led to concerns about its AT1 bond interest payment ability, causing a sharp decline in the European bank AT1 market. After Deutsche Bank announced a bond repurchase, market sentiment eased [83]. - **Deutsche Bank's Non - Redemption Cases in 2020 and 2025**: In 2020, it was due to the lower reset coupon compared to the refinancing cost; in 2025, it was to reduce exchange losses. Non - redemption may send a negative signal to the market [90][91]. - **UBS's Full Write - down of Credit Suisse's AT1 Bonds in 2023**: This event violated the traditional "debt before equity" repayment order, causing market concerns. It highlighted the importance of the "write - down clause" in AT1 bonds, regulatory powers, and regulatory differences [101][103][111]. - **Banco Popular Español's Case in 2017**: The bank's financial situation deteriorated rapidly. After being recognized as "failing or likely to fail" by the ECB, its AT1 bonds were first converted into shares and then fully written down, revealing the risk of regulatory judgment [112][115][118]. - **Banca Monte dei Paschi di Siena's Case in 2017**: After multiple self - rescue failures, the Italian government intervened. As a condition for state aid, the bank's AT1 bonds were forcibly converted into common shares, indicating that subordinated creditors will bear losses first in case of government assistance [119][123][124]. - **Bank of Jinzhou's Interest Payment Cancellation in 2019**: The direct reason was that the capital adequacy ratio did not meet regulatory requirements. After the cancellation, the bond price dropped, and it affected investors' confidence in other small and medium - sized Chinese banks' AT1 bonds [125][129]. 3.3 Pricing of Overseas Bank Bonds - **Pricing Drivers**: The pricing of overseas bank bonds is driven by the benchmark interest rate and credit spread. The spread of bank subordinated bonds is mainly affected by risk events, while that of ordinary bank bonds is dominated by liquidity premium [134]. - **Spread Composition**: The bank bond spread consists of liquidity premium and credit risk premium. Subordinated bonds such as AT1 and AT2 have a variety premium compared to ordinary bank bonds, which is an important part of the credit risk premium. Internationally, the spread between AT1, AT2, and ordinary bank bonds is larger, and AT1 is often classified as high - yield bonds [134].