According to Zhitong Finance APP, Huafu Securities released a research report stating that as of 26H1, the interest-bearing liability cost ratio of listed banks stood at 1.48%, down 26bp from the beginning of the year, among which the cost ratio of state-owned banks was 1.33%, down 22bp from the beginning of the year. If the remaining high-interest deposits maturing next year are taken into account, there is still further room for bank liability costs to decline; the more the incremental liability-side cost rises, the stronger the demand for allocating high-yield assets becomes, which will instead intensify banks' pursuit of long-duration bonds, meaning it benefits long-term bonds; however, in the short term, constrained by the rise in liability-side costs, short-term bonds cannot cover costs, and banks are forced to allocate long-duration assets. In the long run, they need to balance duration risk and potential mark-to-market losses in the bond market. Without further rate cuts, the broad direction of the interest rate midpoint may have already bottomed out. The main views of Huafu Securities are as follows: bank bond allocation faces short-term pressure to break even between cost and income, and long-term duration risk. From the interest-bearing liability cost ratio data, as of 26H1, the cost ratio of listed banks was 1.48%, down 26bp from the beginning of the year, among which the cost ratio of state-owned banks was 1.33%, down 22bp from the beginning of the year. If the remaining high-interest deposits maturing next year are considered, there is still further room for bank liability costs to decline. Traditional thinking holds that improvement in bank liability-side costs is beneficial to the bond market, but this is only a short-term perspective. At present, the more the incremental liability-side cost rises, the stronger the demand for allocating high-yield assets becomes, which instead increases banks' pursuit of long-duration bonds, meaning it benefits long-term bonds. Increases in deposit rates often begin with banks that have the weakest liability base. One signal worth watching is that some banks have started to raise deposit rates, such as major banks restarting the issuance of 5Y large-denomination certificates of deposit in August, and some private banks recently raising medium- and long-term deposit rates. For banks, current asset allocation needs to balance short-term profitability and long-term operations. That is, in the short term, constrained by the rise in liability-side costs, short-term bonds cannot cover costs, and banks passively allocate long-duration assets, while in the long run they also need to balance duration risk and potential mark-to-market losses in the bond market. There is a need for policy rate cuts. From the data, in the January-August period of the past two years, the personal plus corporate general deposits of the four major banks increased by 3.99 trillion yuan and 2.94 trillion yuan respectively, while non-bank deposits increased by 4.06 trillion yuan and 4.88 trillion yuan. Non-bank deposit growth exceeded general deposit growth. The core reason is that the current policy rate OMO is 1.4%, while the average liability cost ratio of state-owned banks is 1.33%, and the newly added 3Y listed rate is 1.25%. The policy rate is clearly higher than the market rate, which also leads to the shift of deposits into non-bank channels. There are two impacts on the market: first, non-bank deposits and interbank certificates of deposit generally use OMO as the pricing anchor, and this pricing anchor is currently higher than ordinary bank deposits. From the structure of interest-bearing liability costs, the interbank liability cost ratio of state-owned banks is 1.62%, while the deposit cost ratio is only 1.21%. Funds flowed to non-bank institutions that can offer higher returns and then were deposited back into banks for arbitrage, causing banks to lack stable liabilities. Second, the guiding effect of the policy rate on market rates has weakened. Generally speaking, when the policy rate is equal to or lower than the market rate, a cut in the policy rate better reflects its role in guiding market rates lower, whereas when the policy rate is higher than the market rate, a cut is more likely a return toward the market rate midpoint rather than a guide for market rates to decline. Without further rate cuts, the broad direction of the interest rate midpoint may have already bottomed out. The current logic of interest rate movement lies in liability-side cost pricing shaping asset-side allocation structure. Recently, the bond market has focused on the possibility of compression in the 30Y-10Y spread. The apparent reason is that the market believes only this part of the yield curve has a relatively thick spread, but in reality it is because institutions, based on liability-side cost pressure and the need to maintain scale, need to increase the yield of asset allocation. Taking 30Y government bonds as an example, if held from the end of last year to September 24, the total return was about 5.04%, of which coupon contribution was about 1.70%, while capital gains contributed 3.34%. That is, if the interest rate midpoint remains relatively stable and there are no capital gains, bond market returns are generally low. The current curve shape and term premium compensation are not very different from 2021. Comparing term premiums across maturities at the end of 2021 and now: at the end of 2021, the term premium for 1-10 years was 5.92bp/year, and the term premium for 10-30 years was 2.76bp/year, a ratio of about 2.14 times; while currently the term premium for 1-10 years is 4.90bp/year, and the term premium for 10-30 years is 2.04bp/year, a ratio of about 2.40 times. It is expected that non-bank assets and liabilities will further flow back to major banks, driving the deposit-loan gap of major banks to continue widening. With the policy rate and market rate inverted, the trend of deposits shifting into non-bank channels is expected to continue, and banks need to make long-term preparations for asset-liability repatriation and a marginal rise in liability costs. Risk warning: economic growth declines more than expected, fiscal policy intensity falls short of expectations, and international economic and financial risks exceed expectations.