1. Report Industry Investment Rating - Not provided 2. Core Viewpoints of the Report - This week, the Treasury bond futures market showed a pattern of oscillating downward, the yield curve became steeper, and the TL contract broke below the support platform. In the medium term, due to reasons such as the relatively restrained monetary policy of the central bank, the change in inflation expectations, the orientation of long - and medium - term capital entry into the market, and the inability to falsify the 14th Five - Year Plan policy expectations, the view of an overall oscillating and bearish trend is maintained [3]. 3. Summary by Relevant Catalogs 3.1. Weekly Focus and Market Tracking - This week, the Treasury bond futures market showed an oscillating downward pattern, with the yield curve becoming steeper and the TL contract breaking below the support platform. In the medium term, due to factors like the central bank's relatively restrained monetary policy, inflation expectation change, long - and medium - term capital inflow orientation, and unfalsifiable 14th Five - Year Plan policy expectations, the overall view is oscillating and bearish [1][3]. - The market showed a differentiated feature of short - end stability and increased long - end volatility this week. Short - end interest rates were supported by loose liquidity, while the long - end was pressured by policy expectations. After the Central Financial and Economic Affairs Office proposed to implement a "more proactive fiscal policy" in 2026 on December 25th, market concerns about the supply pressure of ultra - long bonds increased. Currently, the spread between 30 - year and 10 - year Treasury bonds has risen to a nearly two - year high, and the value of the ultra - long end is emerging [5]. 3.2. Liquidity Monitoring and Curve Tracking - Not provided 3.3. Seat Analysis - On December 29th, the market opening was expected to trigger a quantitative selling signal, leading to an increase in trading volume. Private funds reduced their positions intraday, intensifying the position reduction of allocation - type institutions. Currently, the cost - effectiveness of the ultra - long end is gradually emerging, and various institutions have a slight willingness to test positions intraday [10].

Report Industry Investment Rating No relevant content provided. Core View of the Report - The short - and medium - term performance of the bond market was strong this week due to the continued balanced and loose liquidity, stable overnight capital prices below 1.3%, and the potential for some institutions to buy short - term bonds to boost scale at the end of the year. The ultra - long end also recovered in the second half of the week. The report has a cautiously optimistic view on the bond market trend this year, suggesting short - term buying of TL contracts at low prices and taking profits at high prices. It believes that the probability of short - term policy rate cuts is not high, which will restrict the subsequent performance of the short - and medium - term bonds. For the ultra - long end, the 30Y Treasury bond yield around 2.3% may be attractive to allocation investors, but the recovery rhythm may be repeated due to factors such as the imbalance between supply and demand of ultra - long bonds and the unimplemented public offering new regulations [5]. - The continuous decline of overnight capital prices has raised the market's expectation of interest rate cuts to some extent, but the report remains cautious about short - term policy rate cuts. Next week, approaching the New Year and with a net government bond payment of over 300 billion yuan, the capital market may face certain disturbances, and it is recommended to pay attention to the central bank's MLF renewal [8]. Summary According to Relevant Catalogs Part I: Weekly Core Points Analysis and Strategy Recommendations Comprehensive Analysis - The monthly economic data released at the beginning of the week had few bright spots, but the domestic macro - narrative is still mainly driven by expectations, and the bond market continues to be insensitive to weak fundamental data. The capital market remains balanced and loose, with overnight capital prices stable below 1.3%, which has raised the market's expectation of interest rate cuts to some extent. The short - and medium - term bonds performed strongly this week, and the ultra - long end also recovered in the second half of the week. The central bank's loose stance remains unchanged, and the risks faced by the short - and medium - term bonds in the bond market are relatively controllable. However, the probability of short - term policy rate cuts is not high, which will restrict the subsequent performance of the short - and medium - term bonds. The 30Y Treasury bond yield around 2.3% may be attractive to allocation investors, and the high spread between new and old bonds may provide an additional safety cushion for the TL contract. But considering factors such as the unchanged macro - narrative driven by expectations, concerns about the imbalance between supply and demand of ultra - long bonds, and the unimplemented public offering new regulations, the recovery rhythm of the ultra - long end may be repeated. The report has a cautiously optimistic view on the bond market trend this year [5]. Strategy Recommendations - Unilateral: Try to buy TL contracts at low prices, be cautious about chasing high prices, and take profits in a timely manner. - Arbitrage: Wait and see for now [5]. Capital Market Situation - The central bank restarted the 14 - day reverse repurchase operation this week to protect the year - end market liquidity. The impact of tax payments and the freezing of funds for new share subscriptions on the Beijing Stock Exchange on the inter - bank capital market was relatively limited. Market capital prices continued to run at a low level, better than expected. As of Friday's close, DR001 reached 1.2706%, a new stage low, and DR007 was 1.4413%, still stable above the policy rate. The overnight and 7 - day non - bank capital spreads were 8.11bp and 7.35bp respectively. In terms of long - term funds, the one - year certificate of deposit issuance rate of joint - stock banks fluctuated around 1.66% this week [13]. Concerns about Supply and Demand of Ultra - Long Bonds - Since 2024, the absolute scale and proportion of ultra - long - term government bond issuance have increased significantly. In 2025, government bonds with a maturity of over 10 years have accumulated issuance of 6.7 trillion yuan, accounting for about 25.8%. Insurance companies, as the largest net buyers of ultra - long bonds in the secondary market, have seen slower growth in premium income on the liability side than the supply of ultra - long bonds on the asset side in the past two years. After "924" last year, policy incentives and the recovery of risk appetite led to the re - balancing of investors' asset portfolios, with more funds flowing into the equity and some commodity markets, further alleviating the "asset shortage" in the bond market and reducing the demand for long - term bonds. On the one hand, if the narrative of the equity market and some commodities changes, the inflow of funds may slow down. On the other hand, if the financing cost rises significantly, the term structure of government bond issuance may be adjusted, or the central bank may directly buy ultra - long bonds in the secondary market [15][22]. Continued Negative Growth of Some Domestic Demand Indicators - Data since the second half of the year shows that the multiplier effect of the previous policies to expand domestic demand was average. After the policy support weakened, the growth rate of domestic demand indicators declined. However, the domestic macro - narrative is driven by expectations, and the bond market continues to be insensitive to weak fundamental data [27]. Futures Bond Valuation - Calculated based on ChinaBond valuations and futures settlement prices, as of Friday's close, the IRRs of the TS, TF, T, and TL main contracts were approximately 1.6952%, 1.6643%, 1.5795%, and 1.1446% respectively. The overall valuation of the futures bond market is at a reasonable level. The relatively low IRR of the TL contract is partly due to the joint strengthening of the Friday's closing and the spot bond, while the futures settlement price was relatively low [33]. Part II: Relevant Data Tracking Treasury Bond Futures Contract Spreads - Data on the spreads between different Treasury bond futures contracts such as TS, TF, T, and TL are presented, but no specific analysis is provided in the text [38]. Trading Volume and Open Interest - Data on the trading volume and open interest of TS, TF, T, and TL contracts are presented, but no specific analysis is provided in the text [41]. Spot Bond Yields and Spreads - Data on Treasury bond spot yield curves, Treasury bond term spreads, spreads between Treasury bonds and local bonds, and spreads between 10Y Treasury bonds and China Development Bank bonds are presented, but no specific analysis is provided in the text [44]. US Treasury Bond Yields and Exchange Rates - Data on US 10 - year Treasury bond yields, the spread between Chinese and US 10 - year Treasury bonds, the US dollar index, and the offshore US dollar - to - RMB exchange rate are presented, but no specific analysis is provided in the text [47].

Summary of Key Points from Conference Call Records Industry Overview - The records primarily discuss the bond market and monetary policy in China, focusing on the implications of recent economic meetings and market dynamics. Core Insights and Arguments 1. **Monetary Policy Outlook** - The monetary policy remains accommodative, emphasizing cost reduction and interest rate cuts, but short-term market reactions are muted due to insufficient allocation power, leading to a weak cross-year market outlook. A potential turning point is expected after January 2026 with a high probability of reserve requirement ratio (RRR) cuts to alleviate bank liabilities [1][2][3] 2. **Fiscal Policy Stance** - Fiscal policy is expected to remain stable with limited incremental changes, focusing on effectively utilizing existing policies. The broad deficit is projected to remain consistent with 2025 levels, lacking strong fiscal stimulus signals, which contributes to muted market reactions [1][4] 3. **Long-term Bond Market Dynamics** - Increased issuance and extended maturities of special government bonds and local government bonds will lead to higher supply in the long-term and ultra-long-term bond markets, exerting upward pressure on yields despite stable fiscal policies [1][5] 4. **Economic Growth Targets** - The economic growth target for 2026 is not expected to decline due to stable fiscal policies. There is a strong domestic demand for economic growth, and if mid-year performance is below expectations, policy adjustments will likely be made rather than lowering growth targets [1][6] 5. **Impact of Interest Rate Caps** - The setting of domestic interest rate caps serves as a stabilizing measure for the government bond market, allowing for controlled upward movement in rates during the current expansion phase, contrasting with rapid fiscal expansions seen in other economies [1][7] 6. **Challenges in Domestic vs. Overseas Markets** - Domestic markets face fewer pressures compared to overseas markets during fiscal expansions, with only 1.5 layers of pressure compared to four for overseas markets. This includes managing public bond yields and some price increases [1][8] 7. **Central Economic Work Conference Insights** - The conference indicated that future monetary policy will focus on supporting livelihoods and real economic development rather than merely inflating asset prices. The central bank may buy government bonds to maintain national leverage costs if rapid interest rate increases occur [1][9][10] 8. **Banking Sector Dynamics** - The banking sector's allocation power is expected to be weak at the end of the year and early 2026, influenced by discussions on next year's KPIs and the performance of insurance institutions in the equity bull market [1][11] 9. **Short-term Trading Strategies** - The TL contract is expected to fluctuate between 110 and 113.5, with potential strategies focusing on tax rate differences between old and new bonds, contingent on a stable market environment [1][12] 10. **Credit Bond Market Impact** - Recent policies, particularly regarding local government debt resolution by 2028, will significantly influence the credit bond market, with a focus on addressing hidden and financial debts through local fiscal measures and financial institution support [1][13][14] 11. **Investment Value of Credit Strategies** - Credit strategies are expected to retain investment value in 2026, with a focus on short-duration credit bonds becoming mainstream due to weaker performance in trading assets and overall bond market outlook [1][15] 12. **Trends in Convertible Bond Market** - The convertible bond market is currently experiencing volatility but may benefit from catalysts in the equity market. A balanced approach in selecting convertible bonds, particularly in the technology growth sector, is recommended [1][16][17] 13. **Investment Layout Recommendations** - A balanced investment strategy is advised, focusing on technology growth sectors while also maintaining a base in high-dividend stocks and exploring new bonds with low credit risk to mitigate uncertainties [1][18]

Summary of Conference Call on Long-term Bonds Industry Overview - The discussion revolves around the long-term bond market, particularly focusing on the 30-year government bonds in China and their recent performance trends [1][2][3]. Core Insights and Arguments - **Rising Yields**: Since July, the yields on long-term government bonds have risen sharply, influenced by a reversal of deflation expectations and breakthroughs in technology independence, which have elevated risk appetite in the A-share market [1][2]. - **Market Sentiment**: The sentiment in the market has been weak, with a notable increase in anxiety among investors as the 30-year bond yield rose nearly 10 basis points last week [2]. - **Investor Behavior**: There has been a significant shift in investor behavior, with many moving away from buying into the 30-year bond ETF during the recent downturn, indicating a preference for stop-loss strategies rather than bottom-fishing [3]. - **Banking Sector Impact**: Commercial banks are facing reduced capacity to absorb bonds due to stricter regulatory oversight on interest rate risks, year-end profit adjustments, and the cessation of long-term deposit products [3]. - **Insurance Companies**: Life insurance companies are experiencing a slowdown in premium growth and are increasingly favoring equity assets, leading to decreased demand for long-term government bonds [3]. - **Supply Side Dynamics**: The issuance of special government bonds is expected to continue until 2026, which will likely increase the supply of long-term bonds. Additionally, rising yields in overseas markets, such as Japan, are affecting domestic market sentiment [3][4]. Investment Strategy Recommendations - **Current Market Conditions**: It is deemed unwise to attempt to bottom-fish in the long-term bond market at this time, as the repricing process is not yet complete. The yield spread between 30-year and 10-year bonds in China is still lower than that in the US and Japan, indicating a mispricing that needs correction [4][5]. - **Short-term Opportunities**: Potential short-term trading opportunities may arise from new public fund fee regulations or increased bond purchases by the central bank, although these are not expected to reverse the overall market trend [4][5]. - **Risk Appetite**: For risk-tolerant investors, there is an arbitrage opportunity in the 30-10 year yield spread, which has exceeded 40 basis points. However, investors should be prepared for volatility [5]. - **Conservative Strategies**: Conservative investors are advised to adopt a leveraged carry strategy, as the current funding environment is stable and favorable for such approaches [5]. Additional Important Points - **Market Volatility**: The volatility in the A-share market has not weakened the macro trend, and investors with a higher risk appetite are encouraged to explore opportunities in the 10-year bond market, which is currently at the upper end of its trading range [2][5]. - **Long-term Outlook**: The long-term bond market is expected to continue its repricing process, and the best strategy remains leveraging carry strategies in the medium to long term [5].

Report Summary 1. Investment Rating There is no specific industry investment rating provided in the report. 2. Core View The bond market is expected to continue its oscillating trend. Considering the weak fundamental situation, a slightly bullish stance is recommended for unilateral trading, with the suggestion to lightly position long on T contracts on dips. In terms of arbitrage, it is advised to stay on the sidelines for the short - term after closing the short position on the 30Y - 7Y term spread (TL - 3T) mid - week. Attention should be paid to potential cash - and - carry arbitrage opportunities in the next - quarter bond futures contracts [5][6]. 3. Summary by Directory First Part: Weekly Core Points Analysis and Strategy Recommendation - **Market Analysis**: This week, the bond futures market showed some divergence. Some market participants pre - speculated on the central bank's treasury bond trading information for this month, leading to relatively stronger performance in the short - to - medium - term. Meanwhile, foreign media reports on real - estate incremental policies suppressed long - term sentiment, with the TL contract declining more in the second half of the week. The actual progress, specific intensity of real - estate policies, and the source of fiscal subsidy funds are unknown, making it difficult to drive a trend - upward in yields. Market expectations for interest - rate cuts are weak, and capital prices continue to constrain the downward movement of yields [5]. - **Strategy Recommendation** - **Unilateral Trading**: Adopt a slightly bullish approach and lightly position long on T contracts on dips [6]. - **Arbitrage**: After closing the short position on the 30Y - 7Y term spread (TL - 3T) mid - week, stay on the sidelines in the short - term. For inter - delivery - month arbitrage, also enter a wait - and - see mode as the liquidity of the current - quarter contracts will gradually decline next week. Pay attention to potential cash - and - carry arbitrage opportunities in the next - quarter bond futures contracts, as their valuations are relatively high, mostly above 1.7% [5]. Second Part: Relevant Data Tracking - **Economic Data** - **EPMI**: In November, China's Strategic Emerging Industries Purchasing Managers' Index (EPMI) was 52.7, down 7.0 percentage points from the previous month. Although the decline was significant, it remained in the expansion range. EPMI and the official manufacturing PMI usually have high synchronicity in trends, but they diverged last month, indicating significant differences in the prosperity of different domestic industries. With the slowdown in the expansion of emerging industries in November, the recovery momentum of this month's PMI may still be weak [10]. - **Capital Market** - **Funding Conditions**: This week, affected by tax payments and a still - high net financing scale of government bonds, the market funding situation tightened first and then eased. As of Friday's close, DR001 and DR007 were 1.3209% and 1.4408% respectively. The overnight and 7 - day non - bank funding spreads were 6.68bp and 5.44bp respectively. The one - year certificate of deposit issuance rate of joint - stock banks slightly rose to around 1.65%. Next week, the net financing scale of government bonds will continue to decline, but approaching the end of the month, the funding situation will face some temporary disturbances. With the central bank's consistent supportive attitude, the upward range of market funding prices is expected to be relatively limited [12][16][17]. - **Term Spread**: Since Wednesday this week, the 30Y - 7Y term spread has widened again. On one hand, after the spread approached 40bp, there was a lack of substantial positive drivers, and the momentum for further compression was insufficient. Some funds pre - speculated on the central bank's treasury bond trading information for November and preferred to go long on medium - term treasury bonds. On the other hand, foreign media reported on Thursday that the policy level was considering providing mortgage subsidies to new home buyers nationwide in the future, which was more bearish for the long - term. If the mortgage subsidy policy is finally implemented, it will help balance the cost of home purchases and the rent - to - sale ratio for residents, and the probability of the central bank cutting interest rates will decrease accordingly, which is negative for the bond market. However, the details of relevant policies are unknown, so the bond market is not expected to over - price in advance [18][19][25]. - **Arbitrage Indicators** - **Inter - delivery - month Arbitrage**: In the past two weeks, the indicators for potential inter - delivery - month arbitrage opportunities during the roll - over period of the T contract triggered two short - term long - trading signals, but the indicator became neutral starting on Thursday, presumably related to the significant increase in long positions in the next - quarter T contract on that day. As next week is the last week before the delivery month, it is recommended to enter a wait - and - see mode for inter - delivery - month arbitrage [5][26][29]. - **Cash - and - carry Arbitrage**: Calculated based on the ChinaBond valuation and futures settlement prices, the implied repo rates (IRR) of the current - quarter contracts of TS, TF, T, and TL are 1.3226%, 1.0132%, 1.4099%, and 1.2732% respectively. The IRR of the next - quarter contracts of TS, TF, T, and TL are 1.6583%, 1.7361%, 1.7706%, and 1.7469% respectively, with relatively high valuations [34]. - **Roll - over Progress**: This week, the roll - over of the main contracts accelerated significantly. As of Friday's close, the roll - over progress of the TS, TF, T, and TL contracts was 69.2%, 63.2%, 63.7%, and 64.8% respectively [35].

Core Viewpoint - The recent phenomenon of simultaneous declines in both the stock and bond markets is primarily attributed to the bond market absorbing some of the redemption pressure and deleveraging demands caused by the stock market's pullback, with speculative funds in TL contracts further amplifying this volatility [1][2]. Group 1: Market Dynamics - The bond market's motivation to go long has not increased due to the stock market's pullback, as the current environment is characterized by low odds and ongoing concerns about potential new fund fee regulations [1]. - The stock market's decline may have triggered a chain reaction among multi-asset funds, leading the bond market to bear some selling pressure and deleveraging demands, evidenced by low divergence indices among brokers and funds [1]. - TL contracts have a high proportion of speculative funds, which tend to engage in short-term trading rather than long-term allocation, making them more susceptible to market sentiment and cyclical trading behaviors [2]. Group 2: Historical Context - Historical patterns indicate that the phenomenon of "simultaneous declines in stocks and bonds" with "greater declines in futures than in cash bonds" has occurred previously, specifically in late October 2023 and mid-March 2024, typically lasting no more than 10 days before a synchronized recovery in both markets [2].

Core Viewpoint - The news highlights an upward movement in government bond futures, indicating a potential shift in market sentiment towards safer assets [1] Group 1: Market Performance - Government bond futures rose in the afternoon, with the TL contract increasing by 0.12% to 119.39 and the T contract rising by 0.10% to 108.59 [1] - The yield on the 10-year government bond active coupon decreased by 1.1 basis points to 1.6970% [1]

Group 1: Report Information - Report Title: "TS Contract: Can It Still Be Used for Cash-and-Carry Arbitrage? - Interest Rate Weekly (Week 3 of May)" [1] - Report Date: May 19, 2025 [2] - Chief Analyst: Yan Ziqi, with a practice certificate number of S0010522030002 [2] - Research Assistant: Hong Ziyan, with a practice certificate number of S0010123060036 [2] Group 2: Industry Investment Rating - No industry investment rating is provided in the report. Group 3: Core Views - Since the implementation of reciprocal tariffs on April 3, the bond market's maturity yields have first decreased and then increased. Among treasury bond futures, the TL contract has been strong, while the TS/TF/T main contracts have declined [2]. - The weak performance of the TS contract is due to the previous large premium and the change in the expectation of loose monetary policy. The market's expectation of loose monetary policy changed significantly in Q1, and there are differences in the short - term expectation of loose monetary policy after the double - cut in May. The yield curve has flattened instead of steepening as expected [3]. - As of May 16, the basis of the TS main contract is - 0.07 yuan, and the IRR is 1.79%. The basis has significantly converged, and the IRR is close to the capital interest rate, so the cost - effectiveness of cash - and - carry arbitrage is insufficient [4]. - In the short term, the TS contract may still be in a premium state because of the continuous negative carry. The inversion between R001 and the 2 - year treasury bond maturity yield has decreased from about 60bp at the beginning of the year to 15bp on May 16, and the negative carry phenomenon of some varieties will continue [4]. - Considering that the tight capital situation in Q1 will not repeat, the short - term interest rate has a ceiling and the probability of a sharp decline is low. With the significant convergence of the basis, one can consider participating in the possible rise of the TS contract [4]. Group 4: Analyst and Research Assistant Introduction - Analyst Yan Ziqi is the assistant director of the Research Institute of Hua'an Securities and the chief analyst of fixed income. He has 8 years of experience in sell - side fixed income and equity research, and has won the second place in the 2024 Wind Gold Analyst and the best analyst in the 2023 Choice fixed income industry [12]. - Research Assistant Hong Ziyan is a master of financial engineering from the University of Southern California, covering macro - interest rates, institutional behavior, and treasury bond futures research [12].