Bond Market Adjusts; Experts Doubt "Wealth Management Negative Feedback"
【Introduction】The bond market has undergone a significant adjustment, with market insiders saying the possibility of a "negative feedback loop in wealth management" is not high.
Under the recent "seesaw" effect between stocks and bonds, the bond market has responded with an adjustment, compounded by redemption pressures from cash management-type wealth products, marking a critical moment for a potential market shift. Whether a negative feedback loop emerges after a sharp short-term decline has become a key indicator for various funds.
Industry insiders have stated that due to strong policy stimulus leading to a robust stock market recovery, there has been a drastic short-term change in market risk appetite, causing some capital to flow out of the bond market and disrupting bond prices. However, the scenario of a "negative feedback loop in wealth management" that some investors are concerned about is unlikely to occur, and the bond market as a whole remains in a relatively favorable environment.
The adjustment range for medium and short-term credit bonds is relatively large.
Advertisement
Wind data shows that as of October 11th, the China Bond - Total Wealth (Total Value) Index has fallen by 0.61% since September 24th, with the maximum drawdown reaching 132 basis points during the period. Among them, the adjustment range for medium and short-term credit bonds is relatively large, while the adjustment range for interest rate bonds is smaller than that for credit bonds.
Regarding the recent significant adjustment in the bond market, Xie Zhihua, Director of Fixed Income Investment at Minsheng Jiabao Fund, said that first, when the stock market recovers, investors' risk appetite tends to rise, some funds will flow from the bond market to the stock market, increasing bond selling in the short term and triggering adjustments in the bond market. Second, the stock market recovery itself is also supported by fundamentals and expectations. If the market expects significant fiscal policies to be introduced in the future, it may increase economic activity and capital demand, leading to funds flowing from the bond market to real economic projects and causing bond prices to fall. Third, the stock market recovery occurred at the end of the quarter, when the capital market was relatively tight. Affected by unexpected changes in liquidity, some investors sold bonds to obtain funds or re-evaluated investment value, and the special timing also intensified the bond market's response.
Lu Qiting, Assistant General Manager of Fixed Income Investment at Yongying Fund, also believes that first, recent stimulus policies such as reserve requirement ratio cuts, interest rate cuts, stock market targeted support tools, and the real estate market have been introduced one after another, with policy intensity exceeding expectations, demonstrating the policy authorities' determination to reverse the economic downturn. The general risk appetite for funds has increased, putting pressure on the bond market. Second, under policy stimulus, the stock market, in conjunction with the return of foreign capital after the Fed's interest rate cut, experienced rapid and continuous increases in the stock market a few trading days before the National Day holiday, with a significant short-term profit effect, driving some resident funds to cash out or redeem fixed-income products to invest in the stock market. The concentrated outflow of short-term funds from the bond market led to significant adjustments.
Lin Fan, Fund Manager of Fixed Income Investment at Puyi Ansheng Fund, also summarized that the main reason is that since late September, macro policies have entered a period of intensive introduction, with increased macro regulatory efforts in domestic policies, and market expectations for subsequent fiscal policies are also heating up. Under the combined effect of the above factors, the risk appetite of capital market investors has increased, resulting in the phenomenon of a stock market recovery and a bond market adjustment since late September.
Unlike the bond market cooling down in August this year when regulatory authorities stepped in to warn of risks, the rapid recovery of the stock market in this round has led to institutional capital re-allocation expectations, which will have a certain impact on the flow of funds.
Guolian Fund stated that due to the rapid decline in ultra-long bond interest rates, there is a need for profit-taking by profitable institutions. Coupled with the impact of the stock market recovery, funds flow from the bond market to the stock market in search of higher returns, leading to bond adjustments. At the same time, the market's improved expectations for the future economy and expectations for monetary policy easing also put pressure on the bond market. In addition, the duration of products such as public funds is near historical highs, and the demand for reducing duration may also trigger duration strategy adjustments, leading to subsequent redemptions."The recent adjustment in the bond market is mainly due to investors selling financial products to participate in stock market investments against the backdrop of a sudden and significant rise in the stock market, thereby exerting selling pressure on the bond market, coupled with some institutions taking profit operations when bond market yields were at a low level in September." Peng Yang Fund's senior strategy analyst, Wei Fengling, also stated.
"The possibility of a 'negative feedback loop in financial management' is not high, and the bond market may undergo a process of consolidation and fluctuation."
Several interviewees expressed that under the influence of the 'seesaw' trend between stocks and bonds, the bond market is currently at a critical moment. Whether a negative feedback loop occurs after a sharp short-term decline in the bond market is key. However, this adjustment is mainly focused on the long end, with the short end being relatively controllable, so it is expected that the redemption pressure will be limited. The bond market is expected to go through a process of consolidation and fluctuation in the future.
Lin Fan from PuYin Ansheng Fund believes that the recent rapid rise in bond yields is unlikely to continue. The scenario of a "negative feedback loop in financial management" that some investors are worried about has a low probability of occurring.
Lin Fan analyzed that as the pulse of residents' funds rushing into the stock market has basically been completed, the source of funds for the bond market will gradually stabilize subsequently. On the other hand, the recent monetary policy has shown characteristics of increased easing efforts. In addition to policies such as reverse repo rate cuts and reserve requirement ratio reductions that have already been implemented, there may be a series of policies that are beneficial to the bond market, such as the reduction of existing mortgage loan interest rates and deposit interest rates, which are expected to be introduced later. Therefore, the space for further upward movement in the bond market is also relatively limited.
"After this round of adjustment, the smooth bull market trend of the bond market since the beginning of this year has been temporarily interrupted and may undergo a period of consolidation and fluctuation," Lin Fan said.
Xie Zhihua from Minsheng Jiayin Fund also believes that there is still uncertainty about the continuity of the bond market adjustment. From the perspective of long-term economic structural adjustments and the allocation needs of market investors, the overall bond market is still in a relatively favorable environment.
However, he also warned that the bond market continues to face the pressure of adjustments in fiscal policy. If there are continuous fiscal policies that exceed expectations, the bond market will continue to adjust.
In the medium and long term, the bond market still has opportunities.
Many interviewees believe that for the bond market, the effects of policy introduction still need to be observed. At present, the bond market is adjusting rather than reversing the trend. Short-term fluctuations will not affect the long-term performance of bonds.A large fund company stated that in the long term, economic fundamentals may be an important factor affecting the long-term trend of the bond market. The current fundamental situation does not support a complete reversal of the bond market trend. Considering that the Federal Reserve will continue to cut interest rates within the year, and there is still room for domestic reserve requirement ratio and interest rate cuts, the downward trend of interest rates and the bond bull trend may not have ended yet.
Guotai Fund believes that the future trend of the bond market will be influenced by various factors such as economic data, monetary policy expectations, and market risk preferences. If the stock market continues to strengthen, the bond market may continue to bear pressure, but if economic data falls short of expectations, the bond market may rebound. There may be repetitive fluctuations in the short term, but the medium-term bullish expectation still exists.
Peng Yang Fund's Wei Fengling also said that history has proven many times that liquidity risk is a configuration opportunity for the bond market, and investors do not need to panic about the bond market. At present, interest rates have basically stabilized, and credit bonds have a delayed adjustment pressure due to poor liquidity. However, as the spread between 2-year AAA credit bonds and national development bonds returns to above 40BP, the configuration value of medium and short-term high-grade credit bonds, as the main configuration targets of bond funds and financial management, is gradually emerging.
Xie Zhihua also believes that in the short term, the bond market may continue to fluctuate around a new central axis. Due to the low level of interest rates and the high proportion of trading plates, the market structure is unstable, and fluctuations are inevitable. In the medium and long term, the bond market still has opportunities. Economic growth elasticity slows down, demand repair is smooth, funds are easy to stay in the financial system, and the promotion of local debt may exacerbate the asset shortage stage by stage, and the enthusiasm of institutions to buy bonds will continue.
Facing the bond market callback and redemption pressure, public funds promptly adjust investment strategies
Recently, the "seesaw" effect of stocks and bonds has been amplified under the enthusiasm of the bull market. With the adjustment of the bond market, the redemption situation of fixed income products has also been concerned by the market.
Many insiders said that in the face of bond market fluctuations and differentiation, the investment strategy for the future market also needs to be adjusted accordingly, and in the future, attention will be paid to risk control and the leverage level will be reduced.
The reasons for this round of bond market decline are different from before
Compared with the last wave of regulatory reminders of risks, many insiders said that the reasons for this round of bond market decline are different.
PuYinAnSheng Fund's fixed income investment department fund manager Lin Fan believes that the recent rapid rise in bond market yields is precisely the realization of the risks reminded by the last regulatory. Although the domestic and foreign economic environment has been complex this year, the trend of China's economy has not changed in the long term; in the second half of this year, under the pressure of stable growth, macro policy strength has been increased in time, reversing the expectations of bond market investors, and causing yields to adjust. It can be said that the last bond market's upward trend due to regulatory reminders of risks is the "vaccine" for the recent adjustment, which has allowed some bond market investors to adjust their investment positions and structure in advance last time, thereby reducing the impact of this adjustment."The current adjustment in the bond market is a true reflection of the expectations and capital flows regarding the incremental stimulus policies and the short-term rise in risk appetite for equities. Bond prices also reflect the real supply and demand relationship in the market. Market-based pricing can easily lead to overshoots or undershoots due to consensus expectations, while regulatory interventions are more like stress tests or window guidance for the market to prevent the accumulation of risks," said Lu Qiting, Assistant General Manager of Fixed Income Investment Department at Yongying Fund.
A large fund company in Shanghai stated that compared to the past, the recent significant adjustment in the bond market is mainly influenced by three factors: the implementation of loose monetary policy leading to a strong profit-taking sentiment, the repair of risk appetite, and the rising expectations for fiscal policy. The factors triggering the bond market correction are more complex. Looking at a longer time frame, against the backdrop of unchanged fundamental expectations and the difficulty in sustaining a rapid increase in bond assets, the expectation of loose monetary policy operations is foreseeable, making it difficult for the bond market trend to completely reverse into a bear market. It is more likely to remain in a state of fluctuation. In this process, if there are marginal decreases in stock market sentiment, stimulus policies that do not meet expectations, or rapid guidance by the central bank to ease the liquidity, the bond market may experience marginal recovery.
Guotai Fund also stated that the current decline in the bond market is mainly due to the market's early reaction to the pace of policy changes, which were previously more based on judgments of the economic fundamentals or long-term trends. Compared to previous risk warnings, the direct impact of policies is more significant.
Adjust investment strategies in a timely manner in response to corrections
From the perspective of capital dynamics, several industry insiders have indicated that, overall, around the National Day holiday, investors are redeeming pure bond funds and subscribing to equity index funds and secondary bond funds that contain equity. At the same time, some banking institutions are also buying bond funds against the trend.
Guotai Fund admitted that recently, investors' demand for bond market allocation has decreased, with some investors choosing to redeem bond funds to cope with potential market fluctuations. In addition, some institutions have reduced their positions to cope with liquidity management in response to redemption pressure or potential redemptions.
A large fund company in Shanghai stated that currently, the net value break-even rate of wealth management has not significantly increased, and the redemption risk brought by the break-even pressure is relatively limited. Regarding the concern about redeeming fixed-income products and subscribing to equity products in the context of a booming stock market, it seems that the redemption pressure may mainly be on cash management products, and its sustainability remains to be observed.
Amid the bond market correction and redemption pressure on fixed-income products, public funds are timely adjusting their investment strategies.
Several industry insiders have stated that in the face of market fluctuations and differentiation, investment strategies also need to be adjusted accordingly. In the future, they will pay more attention to risk control and reduce leverage levels.
Wei Fengling said, first, since the third quarter, the liquidity of the portfolio has been continuously improved; second, a relatively neutral view is maintained on duration strategy, without being overly aggressive; third, take the opportunity to allocate to high-grade credit bonds with significant investment value that have emerged during this round of adjustments; fourth, pay attention to investment opportunities in credit bonds issued in the primary market; fifth, conduct flexible trading of convertible bonds to strive for reasonable returns for investors, closely monitor the sentiment of the equity market, and be ready to take profits in a timely manner.Guolian Fund points out that in the current market environment, we may adjust the investment strategy for bond funds. For example, we might reduce the duration of the portfolio, decrease the holding proportion of long-term bonds that are sensitive to interest rates, and increase the allocation to high-grade credit bonds and government bonds to obtain relatively stable coupon income. At the same time, we will improve the liquidity of the holding structure to cope with market fluctuations.
"Adjustments and redemptions are more influenced by short-term emotions, while the medium and long-term outlook for the bond market remains positive. Products with larger short-term subscription and redemption fluctuations require more liquidity reserves to cope, to avoid liquidity risks. Products with stable liabilities will actively seek configuration opportunities during the adjustment process," said Lu Qiting.
Lin Fan also believes that since the third quarter, domestic macro policies have been more proactive. The company's bond funds have fully played the guiding role of the investment framework on strategy, and have made predictions and responses to the possible directions of policy intensification and its potential impact on the bond market.
Specifically, after regulatory authorities repeatedly warned about potential risks in the bond market earlier, the company's bond funds have adjusted their holding structure in advance, moderately reducing the duration and leverage level of bond funds. As a result, during this round of amplified yield fluctuations, the fund has well controlled the drawdown of the portfolio's net value. At the same time, before the National Day holiday, as the risk preference in the stock market warmed up, the company's bond funds also increased the proportion of high-liquidity assets in the investment portfolio based on judgments of residents and financial institutions, and reserved sufficient funds to fully meet the recent subscription and redemption needs of various customers.
There are still investment opportunities in the bond market, and it is necessary to respond rationally to the "seesaw" effect between stocks and bonds.
Since September 24th, under the influence of a series of unexpected policies, market risk preference has continued to increase, and the bond market has undergone fluctuations and adjustments.
Many industry insiders believe that in the medium and long term, the trend of China's economy stabilizing and improving has not changed, and there are still investment opportunities in the bond market. It is recommended to view the current "seesaw" effect between stocks and bonds rationally and continue to pay attention to changes in policies, fundamentals, and other factors.
There are still investment opportunities in the bond market, and several varieties are worth paying attention to.
When it comes to bond investment varieties worth paying attention to in the medium and long term, Xie Zhihua, director of the fixed income department of Minsheng Jinyin Fund, said that the first is high-grade credit bonds. As the market returns to stability, the credit spread of high-grade credit bonds may gradually narrow, thereby bringing higher capital gains to investors. The coupon rate of high-grade credit bonds is relatively higher than that of interest rate bonds, which can provide investors with more stable coupon income.
The second is bank secondary bonds and perpetual bonds. Xie Zhihua said that their coupon rates are relatively high, which can provide investors with higher returns. At the same time, when the capital adequacy ratio of banks is improved, the operating risks of banks will also be reduced accordingly, which is conducive to the value enhancement of bank secondary bonds and perpetual bonds.Thirdly, there are local government bonds. Xie Zhihua stated that local government bonds are bonds issued by local governments, which have a high credit rating and strong stability. In the current market environment, local government bonds have relatively strong resistance to falls and possess certain investment value.
"In the medium to long term, the trend of China's economy stabilizing and improving has not changed, and the bond market continues to have good investment opportunities," said Lin Fan, fund manager of the fixed income investment department at Shanghai United International Trust Asset Management Co., Ltd. As fiscal policy stimulates growth, the supply of special national bonds and local special-purpose bonds is expected to be relatively abundant in the future, which will be a good allocation target for the bond market. At the same time, under the policy orientation of high-quality development, corporate bonds that are in line with the direction of industrial innovation, as well as green bonds that are in line with the national low-carbon transition direction, are expected to have good investment returns.
A large fund company also believes that the correlation between stocks and bonds has a significant impact on long-term bonds. Subsequent long-term bonds may experience more noticeable fluctuations as equity strengthens, while short-term bonds and credit bonds may be a more stable source of returns. After a rapid reversal of policy expectations, the adjustment range is large and the speed is fast. Considering the central bank's clear orientation towards a loose monetary policy, the bond market may usher in a configuration opportunity after the adjustment, among which the cost-effectiveness of long-term and ultra-long-term configurations has relatively improved.
Lu Qiting, assistant general manager of the fixed income investment department at Yongying Fund, said that in the medium to long-term interest rate reduction cycle, after adjustment, all types of bonds currently have good investment value. Among them, it is worth focusing on oversold varieties such as medium to high-grade credit bonds, and the strategy of sinking with stable liabilities is also highly certain at present.
"Policy financial bonds, due to government background support, have relatively low risk and are also a variety worth paying attention to," added Guolian Fund.
Rational response to the stock-bond "seesaw" effect, focusing on policy and fundamental changes.
How should investors face the current stock-bond "seesaw" effect? What uncertainties and risks need to be paid attention to in the future?
The aforementioned large fund company pointed out that the first thing to clarify is that the stock-bond "seesaw" effect does not always hold. Considering the different characteristics of various assets and the different roles they play in asset allocation, the key is still to focus on one's own risk-return preferences and liquidity needs. From a long-term perspective, diversify the allocation, reasonably allocate the positions and weights of major asset classes, and reduce the impact of a single investment tool on asset returns through diversified investments.
Wei Fengling, a senior strategy analyst at Pengyang Fund, pointed out that this round of stock-bond "seesaw" effect is not due to the adjustment of asset allocation driven by the macroeconomic fundamentals, but mainly due to the profit effect of the stock market in a short period and the rise in transaction demand driven by investor sentiment.
"If the equity market maintains high volatility, it is not conducive to cultivating patient capital and new quality productive forces. In the future, it is highly likely that the volatility of the equity market will decrease," Wei Fengling believes that investors should pay more attention to the actual situation of the fundamentals and policies, strengthen the research on the fundamentals of companies, and pay more attention to the scientific interpretation of economic and financial policies by policy departments and authoritative media.Yongying Fund's Lu Qiting and Guolian Fund both advise investors to respond rationally to the "seesaw" effect, avoiding excessive tracking of hot spots and chasing rises and falls, and to allocate assets based on their own risk preferences and investment objectives. In terms of the uncertainties that need to be watched in the subsequent bond market, in addition to policy changes and changes in economic fundamentals, there are also the tightness of market liquidity and the exposure of credit risks.
Puyin Ansheng Fund's Lin Fan also believes that investors should reasonably distribute their own assets between equity and debt assets according to their own risk preferences and market changes, avoiding frequent and significant "running" of funds between the stock and bond markets due to short-term market fluctuations.
"Looking ahead, investors still have certain expectations for fiscal policy, and whether there will be changes in the supply scale of national bonds and local bonds in the fourth quarter of this year and in the next few years may be a factor that disturbs the bond market," Lin Fan said.
Minsheng Jiayin Fund's Xie Zhihua also advises investors to adhere to long-term investment, understand that the "seesaw" effect between stocks and bonds is a common phenomenon, and not to overly pursue short-term high returns. "Long-term investment can smooth the impact of market fluctuations. On the premise of matching the risk-bearing capacity of investors, patience and determination should be maintained in bond investment."