In the context of escalating global geopolitical conflicts, China's ultra-long-term government bond market has shown robust upward momentum. As the domestic funding environment continues to remain loose, short-term asset yields have reached the lower bounds of their range, causing substantial institutional funds to flow into long and ultra-long-term bonds. This macro backdrop has not only driven the yield curve to flatten but has also deeply influenced the asset allocation logic of the fixed-income market and the interaction relationships along the industry chain.
Term Spread Correction and Asset Supply Structure
The core contradiction facing the current bond market is the mismatch between abundant liquidity and the shortage of high-yield safe assets. As the credit spread of bonds with terms of three years and under has compressed to extremely low levels, traditional commercial banks and wealth management subsidiaries face severe pressure from an "asset shortage" in their base portfolios. To meet the cost demands of their liabilities, financial institutions have been compelled to turn to longer-duration assets to capture term premiums. The 30-year government bond (CGB), due to its high liquidity and relatively high absolute yield, has become the main investment absorbing excess allocation funds. This supply-demand imbalance, driven by the asset side, is the underlying logic guiding this round of long-term rate decline and term spread correction.
Competitive Landscape
In the scramble for long-duration assets, the competitive landscape among various financial institutions is undergoing subtle changes. Large commercial banks, leveraging their funding cost advantage, dominate the eight-to-ten-year key period allocations, while insurance companies and broad-based funds (such as public debt funds and wealth management products) are fiercely competing in the 30-year or even longer ultra-long-term government bond markets. With the disappearance of short-term spread cushions, small and medium institutions lacking adequate duration management capability and interest rate band trading ability will find themselves at a disadvantage in this round of "snatching" long bonds. Simultaneously, in the credit bond market, high-rated issuers with bonds over five years will be the next target for all parties to compress spreads, further lowering the financing costs for high-quality issuers.
Credit Bond Premiums and Strategy Deepening Potential
According to Huayuan Securities' calculations, amid the declining cost-effectiveness of short-term bonds, besides moderately extending duration in the interest rate debt market, there is room for further compression of term spreads in the credit bond market. The current extreme flatness of the three-year and under credit spreads has forced the shift from credit deepening strategies to duration extension strategies. This means that the environment for corporate long-term financing in the bond market is in an excellent window period. For investment institutions, under the strict control of credit risk, exploring high-grade credit bonds with terms of five years and beyond will become an important tactical choice to enhance portfolio yield in the second quarter.
