Should Investors Take Profit on Ultra-Long Bonds?
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Abstract
Guolian Minsheng Securities asks whether ultra-long bonds should be de-risked, and answers not yet. Short-end yields are not cheap and look rangebound; the 10-year CGB is near 1.7% with limited odds of a steeper rally and a floor around 1.65%. For 30-year bonds, if funding stays calm and supply pressure is modest, the 30s-10s spread could compress toward 40bp in August and the 30-year yield could fall to around 2.1%; with the main 30-year issue trading about 48bp over 10s, ultra-longs still offer attractive odds, so the report favors riding the trend rather than taking profit. Portfolios should be barbell-shaped (short plus long) with above-average duration: 2Y credit and policy-bank bonds at the front end, 30-year CGB actives (slight preference for 26T4; also 26T2, 25T6, 25T2) and 20-30Y provincial bonds at the long end. Flattening via TL-T futures and T/TL basis strategies can enhance returns; on the curve, 8-9Y CDB 250205-250215, 5-5.5Y 220210, 3.5-4Y 200205 and a 2026 ADBC floating-rate note screen well. Q4 could see 30s-10s compress to 30-35bp as supply pressure eases; new 10-year 260016 and 30-year 26T6 are due August 14. Risks: faster government-bond issuance, monetary-policy uncertainty, rate volatility.