CORE IDEA The current bond market lacks dominant bullish institutions, warranting caution in bottom-fishing. However, small-scale tactical positions can be considered to capture 1-2bp swings before exiting. In Q1 next year, monetary policy may surprise with looser measures, especially if accompanied by large-scale central bank bond purchases, presenting a major trading opportunity.
1. **Absence of Key Bullish Players** - **Funds**: Weak product performance may prompt early duration reduction ahead of year-end. - **Banks**: Pressure to sell older bonds persists into early next year. A shift from trading to carry strategies is likely post-profit-taking. - **Wealth Management**: Benefiting from new fund regulations, scale expansion is expected in 2026, but December may see long-bond cuts to control drawdowns. - **Insurance**: Limited premium growth favors high-dividend stocks over long bonds. The CSI Dividend Index’s 4.3%-4.4% yield (vs. 30-year bond’s 2.25%) weakens bond support.
2. **Post-Year-End Opportunities** - **Monetary Easing**: Anticipated central bank bond-buying escalation in early 2026 could align with fiscal stimulus, bolstering the market. - **Rebound Potential**: After crowded year-end adjustments, institutional demand may drive an oversold bounce. The C-wave correction (projected to last ~3 months) could bottom near 109 yuan for TL futures, enhancing long-bond appeal.
3. **Short-Term Caution, Mid-Term Optimism** Near-term rate adjustments may persist due to weak bullish sentiment across funds, banks, wealth managers, and insurers. While avoiding aggressive bottom-fishing, small tactical positions are viable. Mid-term, expect policy loosening around Chinese New Year, with central bank bond purchases unlocking significant trades.
**Risks**: Unexpected tariff or geopolitical shifts impacting yields.
**Market Snapshot (Dec 1–5, 2025)**: The 10-year bond yield (250016) fluctuated between 1.8275% and 1.8610%, reacting to PMI data (49.2%), central bank operations (500bn bond purchase, 1tn reverse repo), and regulatory concerns.
**Key Trends**: - Funds’ duration cuts near 2024 lows. - Banks’ OCI accounts grow (7% of revenue in Q3 2025 vs. 2.2% in Q1 2022). - Wealth managers pivot to low-volatility assets like CDs. - Insurers favor high-dividend equities amid sluggish premium growth (7.99% YoY in October).
**Strategy**: Await clearer signals post-year-end, focusing on Q1 2026 policy shifts and potential central bank actions.
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