CITIC Securities says funds' Q2 pattern of extending duration has continued, but
the risk-reward at the ultra-long end has shifted marginally. The 30Y-10Y yield
spread has tightened further since end-Q2 to about 47bp; trading activity in
Chinese government bonds beyond 10 years remain at high historical percentiles.
With limited remaining room for further spread compression, if long-end absolute
yields lack further downward momentum marginal buying from funds and
broker-dealers could weaken, increasing the risk of a phased pullback from
crowded positions.
