Market Review and Analysis Last week's primary market saw issuance volumes for government bonds, local government bonds, and policy financial bonds reach 0 billion, 439.3 billion, and 185.0 billion yuan, respectively, with net financing amounts of -113.3 billion, 310.9 billion, and 183.0 billion yuan. Financial bond issuance (excluding policy bank bonds) totaled 71.8 billion yuan, resulting in a net financing amount of 52.6 billion yuan. Non-financial credit bond issuance amounted to 294.5 billion yuan, with a net financing figure of 149.8 billion yuan. There were no new convertible bond issuances.
Secondary Market Review Sentiment in the bond market continued to recover, with the 10-year government bond yield approaching 1.8%. Key influencing factors included the behavior of allocation-focused institutional investors, real estate policies, and stock market fluctuations.
Liquidity Tracking An acceleration in local government bond issuance, combined with month-end pressures, led to a tightening of liquidity conditions. Ultimately, the R001 and R007 rates increased by 4.3 basis points and 10.4 basis points, respectively, from the previous week.
Policy and Fundamentals The January Manufacturing PMI registered 49.3, indicating a renewed decline in business activity. High-frequency data suggested stable production performance at the start of the year, a slight improvement in real estate demand, divergent trends in food prices, and a surge followed by a pullback in non-ferrous metal commodity prices.
Overseas Markets Former President Trump announced his intention to nominate hawkish governor Kevin Warsh as the next Chair of the Federal Reserve. The 10-year U.S. Treasury yield closed at 4.26%, up 2 basis points from the prior week.
Equity Markets The A-share market experienced a surge and subsequent decline last week, with the Wind All Share Index closing down 1.59%. Sector performance was mixed, with military, automotive, and computer sectors leading the declines. The non-ferrous metals sector fell sharply after trading at extreme overbought levels. Trading volume increased significantly, with the average daily turnover reaching 3.06 trillion yuan for the week, a weekly increase of 264.304 billion yuan. As of January 29, 2026, the total A-share margin balance was 2,722.187 billion yuan, an increase of 14.679 billion yuan from January 22.
Bond Market Strategy Outlook The room for further short-term declines in bond yields during February may be limited. Firstly, as the 10-year government bond yield nears the lower end of the 1.8%-1.9% range, profit-taking demand in the market is likely to increase. Secondly, expectations for the supply-demand dynamics in the bond market during February are shifting, with local government bond issuance expected to accelerate again to meet quotas. Thirdly, the seasonal liquidity tightening pressure before the Spring Festival remains a concern. However, overall, the supply and demand conditions in the bond market at the start of 2026 have been better than previously anticipated by the market. Social financing demand remains insufficient, the growth rate of government bond supply has slowed, and the allocation demand from stabilized bank operations remains high. Pressure on the bond market, particularly on the long end, is more favorable than the judgment made at the end of last year. It is expected that the bond market in the first and second quarters will be characterized by higher certainty in the short-to-medium end and range-bound fluctuations in the long end. Potential directional changes warrant close attention to external inflation transmission and the stabilization of the real estate market. While there were some positive signals in the real estate sector in January, their sustainability needs to be observed continuously after the Spring Festival. There is also a trend of rapid recovery in PPI due to rising prices of non-ferrous metals and energy. Regarding convertible bonds, the CSI Convertible Bond Index declined. Subsequent focus should be on whether the current stock market structure can be maintained. Furthermore, when participating in equity-oriented convertible bond varieties, stricter discipline is required compared to before, both in terms of position control and the assessment of potential forced redemption expectations.
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