The global asset pricing landscape has grown increasingly intricate, with the core market driver shifting decisively towards the supply-demand imbalance at the long end of US Treasuries and the repricing of term premiums. This structural tension now underpins all major volatility, style rotations, and liquidity disruptions witnessed across markets. During typical economic downturns, financing demand naturally contracts, long-end yields drift lower, and asset price movements follow clear patterns. However, the United States currently exhibits a structural mismatch: while the real economy shows signs of marginal weakening, persistent high-deficit fiscal financing and the capital-intensive nature of the AI industry's long-cycle investments create rigid long-end funding needs. This "weak economy, strong financing" dynamic continues to elevate US Treasury term premiums, fundamentally reshaping the global valuation framework.

During the first half of the year, global markets traded with remarkable stability and a singular narrative. Supported by relative US economic resilience, AI sector expansion, and continuous Treasury issuance, long-end yields maintained elevated ranges, the US dollar stayed firm, and assets globally anchored to the "US relative outperformance" thesis. Volatility remained contained, allocation themes were clear, and no systemic pressure threatened the market. The primary focus then revolved around Fed rate hike expectations, with asset prices fluctuating in tandem with those expectations.

Entering August, however, the market narrative underwent its first critical shift. The excessively priced-in rate hike expectations triggered a concentrated unwind, fueling a phase of dollar weakness and a brief rebound in risk assets. Yet, this movement represented a self-correction of trading sentiment—a short-term pulse rather than a reversal in US fundamentals or a definitive global trend inflection. The more alarming development was the market's focus pivoting entirely from "rate expectation trading" to liquidity crunch risks stemming from long-end Treasury selling. Since August, 30-year Treasury yields have hit cyclical highs, global bond volatility has surged. Compounded by the rapid retreat of yen carry trades and geopolitical disruptions to oil prices, markets have experienced classic "triple whammy" sell-offs across equities, bonds, and currencies. These dynamics are far from ordinary sentiment corrections; they signal a tightening of global liquidity driven by long-end volatility—the most significant hidden systemic risk precursor to monitor this year.

Two distinct pathways may unfold. The first, an optimistic scenario, hinges on a voluntary slowdown in US long-end financing, a conclusion to concentrated bond selling, and effective implementation of Fed liquidity tools. This would allow term premiums to peak and retreat, easing the crowding-out panic. In this scenario, the US curve would normalize into a steepening pattern, with short-end yields declining alongside rate cut expectations, while long-end volatility contracts and valuations recover. The dollar would sustain strength through global safe-haven demand rather than relative growth advantages. Weaker global demand expectations would continue to pressure commodities, keeping them in a range-bound, soft trend. Gold, having shed its special "term premium + fiscal risk" pricing after an initial adjustment, would return to its traditional driver of falling real interest rates, embarking on a steady upward trajectory. For domestic Chinese assets, easing long-end constraints would open space for declines in long-dated CGB yields, enhancing their allocation appeal and reinforcing the low-credit bull market. However, with a steady global risk-off environment and weakening overseas aggregate demand pressuring corporate earnings, A-shares would likely continue a defensive, structurally-focused trend, favoring policy-driven and self-sufficiency themes.

The second, riskier pathway involves a continued deterioration of liquidity. If US fiscal and AI-driven rigid financing needs persist, keeping long-end supply pressure elevated, and if market volatility remains high while Fed interventions prove ineffective, localized liquidity squeezes could spread from financial markets to the real economy. This would mark a departure from moderate risk-off into deep recession pricing. Under this scenario, Treasury yields would keep climbing until emergency measures emerge. Global demand expectations would collapse, deflationary pressures would build, and equities and commodities would undergo sustained valuation downgrades as markets enter a phase of indiscriminate risk aversion. Despite deflation supporting lower real rates, gold's pricing would come under pressure, its appeal as a safe haven diminishing. For domestic markets, while the low-credit backdrop provides some resilience for Chinese bonds, external shocks would amplify volatility and raise the risk of interim corrections. A-share markets would face dual pressures from weakening external demand and a global risk-asset sell-off, severely compressing earnings across most growth and cyclical sectors.

Given these dynamics, the core investment principle is to anchor portfolios in domestic certainty, hedge against overseas uncertainty stemming from Treasuries, maintain strict trading discipline, and avoid emotional secondary drawdowns. In fixed income, maintaining a core position is paramount, with flexible management of duration. The domestic "low-credit, asset shortage" environment remains unchanged, solidifying the long-term allocation value of Chinese bonds. Investors should hold rate bonds and high-grade credit as portfolio cornerstones to capture steady long-term returns. Critically, one must avoid the triple risk of crowded bond market positioning, equity fund diversion, and rising US yields. Refrain from aggressively extending duration; instead, dynamically adjust positions to sidestep interim pullbacks, favoring short-end stability and selectively exploiting long-end opportunities.

For equities, a defensive, structural approach remains essential. In an environment of high US Treasury volatility and fragile global liquidity, market fluctuations will intensify. Investors should steer clear of high-valuation, long-duration sectors vulnerable to overseas discount rate shocks. The strategic focus should be on domestically-led policy themes, self-sufficiency initiatives, and high-dividend defensive assets. Prioritize defense over offense, awaiting greater clarity in the global liquidity landscape before optimizing equity exposure.