ZheshangWhat is the impact of the equity market's year-end trend on the bond market?

Zheshang released a research report stating that the cross-year bull market in the equity market may have already started, coupled with the hot market trend led by precious metals in the commodity market, which may further impact the logic of asset shortage in the bond market. In a market environment with significantly increased interest rate volatility, while short-term trading strategies may be theoretically advantageous, the actual operational difficulty is greater, and the buy-and-hold dividend strategy may have a higher cost-effectiveness due to its relatively simple operation logic and relatively neutral performance. The text continues: 1. Weekly Bond Market Observation In the past week (December 22, 2025 - December 26, 2025), the 10-year treasury bond yield remained in a narrow range of fluctuation. On December 22, the 12-month LPR quotation remained unchanged, and the treasury bond yields fluctuated higher; on December 23, with abundant liquidity, the treasury bond yields retreated slightly; on December 24, disturbances in broad money expectations caused the treasury bond yields to remain in a narrow range of fluctuation; on December 25, loose funding guided short-term interest rates downward, while medium and long-term interest rates remained relatively weak; on December 26, funding remained loose, market trading sentiment was weak, and the bond market continued its fluctuating trend. As of the closing on Friday, the 10-year treasury bond active yield was reported at 1.8355%, and the 30-year treasury bond active yield was reported at 2.2210%. 1.1 How to view the cross-year bull market in the equity market Since September, the equity market has been in a sideways trend, with the Shanghai Composite Index oscillating widely between 3700 and 4100 points. From December 17 to 26, the Shanghai Composite Index saw an eight-day rally, indicating that the cross-year bull market may have started. We believe that the core asset market trend at the end of 2020, represented by the Maotai Index, may have some reference value in understanding the current cross-year trend in the equity market. The core asset market drove the Shanghai Composite Index to start a cross-year bull market. Looking back at the cross-year bull market trend in the equity market in 2020, it showed a clear feature driven by the core asset market. Represented by the Maotai Index, the Maotai Index hit a temporary low of 549136.41 on November 26, 2020, and then steadily rose to a high of 730658.39 on January 25, 2021, resulting in a 33.06% increase. The Shanghai Composite Index started its trend slightly later than the Maotai Index, rebounding on December 11, 2020, and also reaching a phase high of 3624.24 on January 25, 2021, with a 8.28% increase. Multiple factors are driving the strength of the equity market. 1) In response to public health events, central banks around the world have generally started a loose monetary policy process, creating a macro environment of abundant liquidity. From December 2020 to January 2021, the DR007 showed a downward trend and bottom-shaking state, the low interest rate environment helped to enhance the valuation attractiveness of core assets. 2) The macro economy is in a K-shaped recovery trend, leading companies with industry competitive advantages to have more stable performance expectations, and investors significantly increase their preference for performance stability, thus forming a "group-style" pursuit of leading companies. 3) The steady and high returns of public funds in 2020 gradually led to a boom in fund issuance and subscriptions in January 2021, with 168 new funds issued and a total of 558.60 billion shares. The need for positioning has prompted public funds to prioritize the allocation of core assets with good liquidity and high performance stability, creating a positive cycle of fund issuance - purchase of core assets - stock price increase - attracting more funds. In comparison to now, we believe there are equally favorable factors for the equity market to emerge as a cross-year bull market. 1) The low interest rate environment has been further reinforced, with market rates such as deposit rates and 10-year Treasury bond yields showing significant declines compared to the end of 2020, further favoring the valuation increase of the equity market. 2) Similar to the leading asset market trend in 2020, there is a clear dominance of the technology sector, which makes it easier to attract funds when the main line is clear, forming a positive cycle of buying-rise-continuing to buy-continuing to rise. 3) In recent years, the attention and protection of macro policies on the equity market have been strengthened, and the trend of the equity market since the third quarter has had a strong impact on boosting investor confidence. The current market may have gradually formed a consensus expectation of a slow bull market trend in the equity market in 2026. 4) Due to the calendar effect, public funds may reduce their positions at the end of the year to maintain returns and rankings, but the opposite is also possible. If peer institutions increase their positions at the end of the year and the market performs well, institutions that have not increased their positions may also need to "passively increase" to follow the trend. 5) The recent continuous appreciation of the RMB exchange rate may indirectly benefit RMB-denominated assets, further attracting incremental funds such as foreign investments. 1.2 How does the cross-year bull market in the equity market affect the bond market The cross-year bull market in the equity market may have started, and the hot trend in precious metals continued, while bond asset performance appeared relatively weak in comparison. Asset shortages were an important logic driving the previous bond bull market, but going forward, this logic may face weakening pressure. From the standpoint of asset comparison, bond asset performance appeared relatively weak. Since the equity market initiated a major uptrend in the third quarter, following about three months of sideways oscillation, and recently recorded an eight-day uptrend, indicating that the cross-year bull market may have started, investors generally hold a relatively optimistic attitude toward the long-term performance of the equity market in 2026. In the commodity market, with the surge in precious metals led by silver, short-term bullish sentiment is relatively high, and the silver market may have not yet peaked, hence there is a possibility of a spread of the market trend from silver to other metals such as copper and aluminum. In comparison, the bond market as a whole did not have outstanding performance, both in absolute returns and risk control measures, and did not show superior performance compared to other types of assets. The logic of asset shortage may face weakening pressure. There is a relatively consistent bullish expectation in the equity market, with the cross-year bull market likely starting, and there are structural rotation opportunities in the commodity market, indicating that the asset shortage issue may have effectively improved. For the bond market, funds that flowed in because of asset shortages in the past may face outflow pressure, which could negatively impact the bond market trend. 1.3 Buy-and-hold dividend strategy may have a higher cost-effectiveness The heightened volatility in the bond market makes bond investments face uncertainty, making capital gains more difficult to obtain. The importance of dividend income in investments is further highlighted, and the buy-and-hold strategy for high-dividend credit bonds may have higher cost-effectiveness. The average cumulative returns of pure bond funds in 2025 was 1.44%. As of December 26, with a total of 4157 pure bond funds in the market as the research objects, the actual annual returns were measured by adding fund net value changes to management and custody fees, resulting in an average actual return of 1.44% for pure bond funds. The mode of returns fell in the 1.50% - 2.00% range, accounting for 32.14% of the funds, and there were a total of 880 funds with returns exceeding 2%, making up 21.17%. The increased volatility in the bond market makes it difficult for bond funds to achieve relatively outstanding performance. The buy-and-hold dividend strategy may have a certain cost-effectiveness. While short-term trading can increase investment returns in non-trending markets, it requires high trading abilities and market knowledge. We consider the relatively simple buy-and-hold dividend strategy. If investing in 3-year AAA-rated medium-short bonds, using a constant duration virtual bond constructed based on the Chinese Treasury yield curve as the investment target, as of December 26, the actual annual return could reach 0.93%, ranking 76.80% among all bond funds. If investing in real bonds and considering the ride income brought by shortening duration during the holding period, the actual annual return could reach 1.65%, ranking 43.50% among all bond funds. We believe that in a market environment where interest rate volatility has significantly increased, while short-term trading strategies may theoretically have an advantage, the actual operational difficulty is greater, and the buy-and-hold dividend strategy, with its relatively simple operation logic and relatively neutral performance, may have higher cost-effectiveness. 2. Bond Market Asset Performance 3. Risk Warnings Macroeconomic policy changes beyond expectations may cause a change in asset pricing logic, resulting in an adjustment in the bond market; Institutional behaviors have a certain unpredictability. When institutional behaviors significantly converge and form negative feedback, it may lead to an adjustment in the bond market; Risk of fluctuation in precious metal prices.