On October 9, the long-end contracts of treasury futures stood out.

The 30-year, 10-year, and 5-year main contracts rose by 0.37 yuan, 0.1 yuan, and 0.08 yuan respectively, to 117.24 yuan, 109.46 yuan, and 106.5 yuan.

After the holiday, long-end rate bonds saw prices recover and yields pull back, indicating that bullish forces remain in the market, but after consecutive gains, institutions have become more cautious about the near-term outlook, shifting their focus to the scale of any correction and the timing of allocation.

Where the market may be heading

Lv Pin, chief fixed income analyst at Zhongtai Securities, said October may bring a notable pullback in long-end bonds, with the probability of a rapid new high after the holiday reduced, but it is still too early to view the previous high as the end of this rally, and there may still be opportunities to challenge new highs within the year after the adjustment.

A research note from Everbright Securities suggested the bond market may face a stalemate where yields "cannot go down, but are also hard to rise," with the 10-year government bond yield expected to be around 1.70% by the end of October.

Profit-taking pressure and institutional behavior

At the trading level, profit-taking demand is also an important reason for the adjustment.

A research note from Industrial Securities showed that as of September 28, the median duration of rate bond funds had risen to 5.72 years, a historically high level, and some institutions chose to lock in gains and reduce risk exposure, which may amplify short-term volatility.

However, Industrial Securities believes new policies have not yet changed the main logic supporting the bond market: fiscal efforts focus on structure and quality, institutions have strong demand for suitable assets, the central bank is nurturing liquidity conditions, funding rates are stabilizing, and a recovery in risk appetite takes time, so the market is expected to remain range-bound with a stronger bias.

How institutions view the outlook

Looking ahead, statistics from Sealand Securities show that 48% of sell-side institutions and 33% of buy-side institutions still hold a bullish view on the bond market.

From the buy-side perspective, they believe the central bank's liquidity support is sufficient and an accommodative environment is likely to continue; expectations of monetary easing, weak equity market performance, and fading overseas disturbances are resonating as multiple positives; and reduced supply of ultra-long bonds, replenishment demand from small and medium-sized banks, and fourth-quarter allocation demand provide medium-term support for the bond market.

Huayuan Securities analyzed that currently, short- and medium-term bond yields are at historical lows, credit spreads are low, the bond yield curve remains steep, and opportunities in ultra-long bonds are still relatively prominent.

Issuance of ultra-long bonds within the year is nearing its end, and in the fourth quarter the bond market may price in a possible reduction in ultra-long bond supply in 2027, which could drive a clear compression of the 30Y-10Y term spread.