The bond market was narrowly volatile in the first half of the year, with the main line revolving around liquidity easing and inflation concerns. It is expected that the market will return to allocation ideas in the second half of the year, the performance of 10-year government bonds is expected to be optimistic, need to pay attention to geopolitical and other risk factors.

The market outlook for the second half of the year focuses on the migration of pricing power from non-bank institutions to banks and the impact of K-shaped economic differentiation on the bond market. As bank deposit and loan spreads widen, banks' demand for bond allocation increases, and the value of ten-year bond variety allocation is highlighted. At the same time, after the domestic inflation phase high, the downward pressure on domestic demand increased, leading to the K-type economic differentiation intensified, the bond market presents an environment prone to rise and fall.

The construction of bond market strategy in a low interest rate environment is discussed, emphasizing that the third quarter may become a window period for coupon value and capital gains to resonate. The impact of the central bank's liquidity control on the market was analyzed, and it was pointed out that liquidity will be withdrawn from a neutral easing state in the third quarter, short-end assets may be under pressure, while long-term bonds still have allocation value. The overall bond market is optimistic about the third quarter, and the wide swing pattern is expected to continue.

The performance of the bond market in the first half of 2023 was discussed, noting that high institutional risk appetite and slowing trends on the liability side affected the compression of term spreads. It analyzes the possible differences that the market may face in the third quarter, especially the point selection of insurance and commercial banks for long-term debt allocation. The potential impact of the negative cycle of debt-side redemptions on the market was highlighted, and the downward trend in medium-and long-term financing costs supported the value of bond allocations. This paper introduces the Cathay Ten-Year Treasury Bond ETF, as the only bond ETF in the market that mainly invests in 7-10 years of government bonds, and its stable income benefits from the allocation of 10-year Treasury bond futures deliverable coupons, which is suitable for coupon income acquisition in a narrow volatile environment.

Ten-year Treasury ETFs are not only suitable as intraday trading and repo targets, but also can enhance returns through leverage. In the current macro environment, the allocation of bond assets is critical to smoothing the volatility of portfolio net worth. Even during the bear market in the bond market, the 10-year Treasury ETF can still achieve positive returns, and its coupon properties and pricing anchor role highlight the long-term allocation value. Under the economic transformation and the downward trend of financing costs, commercial banks tend to increase the allocation of 7 to 10-year treasury bonds, providing investors with opportunities to participate in this trend. In the third quarter, further downward financing costs and monetary policy adjustments will strengthen the downward expectations of the interest rate pivot, the compression of medium-and long-term term spreads, and the value of 10-year Treasury investments will be highlighted. Investors should focus on ten-year Treasury ETFs as high-quality targets for smoothing portfolio volatility.