Small and Medium Banks' Bond Investment "Switching Between Offense and Defense" Duration Strategy Returns to Prudence

Recently, the 10-year government bond yield has continued to decline, touching a historical low of 1.6414% as of October 22. Institutions have become increasingly cautious in their trading stance toward long-end instruments. "Our control over the scale of financial investments began long ago; we have not added to bond holdings this year," acknowledged a source from the financial markets department of a rural commercial bank in western China. However, some small and medium-sized banks said their bond investment business is still being carried out at the original pace. The underlying logic of bond investment at small and medium-sized banks is being reshaped. Over the past two years, many small and medium-sized banks relied on extending duration and capturing range-bound spreads through trading books to support non-interest income. Now, this model faces triple pressures: regulatory guidance, risk control concerns, and liability-side constraints. Against this backdrop, small and medium-sized banks have shifted their operations from "selling short and buying long" to "buying short and selling long," with the overall strategy gradually transitioning from trading-led to passive allocation centered on coupon lock-in and liquidity management.