The issuance of the first batch of ultra-long-term special treasury bonds for 2026 commenced smoothly last week, marking the official start of this year's 1.3 trillion yuan ultra-long bond issuance program.
As a significant fiscal measure implemented for the third consecutive year, this issuance features optimizations in both scale and maturity structure. Its impact on the supply-demand dynamics of the bond market, interest rate trends, and institutional allocation strategies is under close scrutiny.
Industry experts suggest that demand for ultra-long bonds is expected to recover this year. Coupled with a high probability of further monetary policy easing, long-end and ultra-long-end interest rates are projected to trend downward, presenting ongoing allocation and trading opportunities.
Supply impact appears limited, highlighting the bond market's resilience. While some institutions expressed concerns that the launch of ultra-long bond issuance might exert short-term supply pressure, ample liquidity and robust allocation demand have effectively counterbalanced market expectations, leading to stable and positive market performance.
On April 24, the winning yield for the first 30-year ultra-long special treasury bond was 2.20%, approximately 3.7 basis points lower than the secondary market yield prior to issuance. The bid-to-cover ratio reached 2.5 times, indicating strong demand. Secondary market performance remained stable, with the 10-year government bond yield rising only 1 basis point to 1.76%, and the 30-year government bond yield also increasing by 1 basis point to 2.25% on the same day.
Research from Huaxi Securities indicates that allocation-oriented institutions like banks and insurance companies currently have ample funds. Commercial banks hold 70% to 80% of ultra-long bonds. Due to volatility in the equity market, insurance institutions have increased their allocation to long-duration assets, forming a stable absorption capacity.
Furthermore, the China Securities Regulatory Commission has clarified that qualified foreign investors are permitted to participate in treasury bond futures trading, which is expected to attract foreign capital to allocate to ultra-long bonds, further alleviating supply pressures.
Multiple industry experts judge that the supply shock from ultra-long bonds is neutral and controllable. Against the backdrop of a repair in long-term liquidity premiums, there remains room for long-end interest rates to decline.
According to statistics from the Zhongtai Securities Research Institute, with the recovery in allocation sentiment towards ultra-long bonds, funds have recently entered the market quite actively. The median duration of top-performing interest rate bond funds (top 25% by performance) has significantly increased—reaching the 48th percentile level since 2025 as of April 24. In the first three trading days of last week, funds were the largest buyers of 30-year bonds.
The raised funds from this 1.3 trillion yuan ultra-long special treasury bond issuance are designated to support key strategic and new initiative areas. According to the Ministry of Finance's plan, 800 billion yuan will be used for national major strategies and key security area projects, covering transportation, water conservancy, energy, and ecological environmental protection. 500 billion yuan is allocated for large-scale equipment upgrades and consumer goods trade-in programs, with 300 billion yuan supporting consumption upgrades like automobiles and home appliances, and 200 billion yuan supporting manufacturing equipment upgrades.
This initiative serves as a crucial lever for stabilizing growth and expanding domestic demand, while also representing a long-term layout for promoting high-quality economic development. The raised funds can diversify funding sources for these areas, address financing challenges for ultra-long-term investment projects, and facilitate better project implementation.
Ultra-long bonds, with maturities of 20 to 50 years and low-cost advantages, precisely match the funding needs of long-cycle, capital-intensive projects. They can avoid crowding out daily fiscal budgets and enhance capital utilization efficiency. The smooth issuance of ultra-long bonds and the rapid deployment of funds are expected to provide strong support for infrastructure investment.
The fixed income team at China International Capital Corporation (CICC) believes the successive issuance of ultra-long bonds reflects the continuity of fiscal policy. By stimulating investment and consumption, it will consolidate the foundation for economic recovery and provide financial support for the start of the 15th Five-Year Plan period.
The issuance of ultra-long bonds presents a mixed picture of pressure and benefits for the bond market. Data from the China Central Depository & Clearing Co., Ltd. shows that as of the close on April 24, yields in the interbank利率债 market fluctuated within a narrow range. For instance, the 3-month Chinese government bond yield fell by 1 basis point to 1.11%; the 2-year yield declined by 2 basis points to 1.24%; while the 10-year yield edged up 1 basis point to around 1.76%.
However, most institutions believe short-term disturbances will not alter the long-term positive trend of the bond market. Institutions need to adjust their strategies to seize allocation opportunities.
On the negative side, concentrated issuance of ultra-long bonds may intensify pressure on the long-end supply. Historical data suggests that during concentrated issuance phases, interest rates could rise by 1 to 3 basis points, while also diverting liquidity from the secondary market and increasing valuation volatility for long-end bonds. Moreover, ultra-long bonds typically have relatively weaker liquidity and lower trading frequency, potentially increasing transaction costs and liquidity risks for institutions.
On the positive side, the expansion of ultra-long bonds will enrich the duration spectrum of the bond market, improve the maturity structure, benefit long-duration institutional allocators like insurance companies and pension funds, and enhance the long-term liquidity depth of the market. Simultaneously, the issuance of ultra-long bonds will promote the return of interest rate bond pricing to fundamentals, strengthen the coordinated调控 mechanism between fiscal and monetary policy, and lay a foundation for the long-term stability of the bond market.
Regarding allocation, demand for bonds is highly likely to see further recovery this year. The market may already be presenting investment opportunities in long-term and ultra-long-term bonds. On one hand, since March, broad-based funds have shown marginally increased participation in利率债, particularly ultra-long tenor varieties. Commercial banks, due to ongoing foreign exchange settlement needs driving liability-side expansion, and faced with weak demand for实体 loans, find increased room for bond allocation as the deposit-loan spread widens. Insurance institutions, against the backdrop of heightened equity market volatility, might reduce stock positions, while a large volume of maturing time deposits could shift towards long-duration bonds, continuously boosting bond allocation demand. On the other hand, the central bank's net purchases of government bonds in the first quarter of this year have already surpassed the total for the previous year. If the current net purchase pace continues, it could bring several hundred billion yuan in incremental demand. Additionally, offshore RMB deposits have rebounded since the second half of last year, and the increasing holding and investment demand for RMB assets from overseas funds will also benefit the issuance of ultra-long tenor bonds.
The previous rapid rally in the bond market has led some institutions to take profits and exit in the short term, which is not surprising. However, the underlying logic of ample liquidity in the asset management industry persists. Short-term profit-taking adjustments might present windows of opportunity for tactical entry.
Huaxi Securities recommends that institutions subsequently focus on carry income as the core while engaging in tactical trading, appropriately extending duration to capture term premiums. Tianfeng Securities suggests a barbell strategy, maintaining liquidity at the short end while capturing value at the long end, and simultaneously seizing trading opportunities presented by bond rollovers between new and old issues.