The start of 2025 has brought an encouraging trend for bond investors, particularly in contrast to the turbulence witnessed on the stock marketInvestors exchanged greetings that reflected their optimism about returns, asking each other about their ‘egg collection’—a lighthearted metaphor for the earnings accrued from bond investmentsThe avian analogy symbolizes the positive yield on bonds, which is notably high this year.

As we stepped into the new year, data revealed that the Zhongzhai Total Wealth Index had gained 0.41% by January 3. In stark contrast to stocks—where the Shanghai Composite Index experienced a decline, even dropping below 3200 points at one point—over 80% of bond funds registered positive gains during the yearFor pure bond funds, the proportion of those achieving gains was nearly 98%. The encouraging performance in the bond market seems to have provided a respite from the volatility in equities.

According to analysts from Jin Ying Fund’s fixed income research department, various new policies have temporarily halted pressure on the bond market, ensuring that government debt issuance has not caused significant disruption to liquidity

Advertisements

With the economic landscape remaining relatively stable in the short term, the bond market is basking in a favorable environment.

The focus among investors appears to be shifting to short-term monetary policyA representative from China Merchants Fund pointed out that with bond market conditions improving, potential regulatory risks and market volatility could increaseAs a strategy, maintaining some duration levels in bond holdings while keeping leverage moderate could be beneficial for enhancing liquidity.

As we delve into the performance of bond funds at the beginning of the year, a staggering 80% of them celebrated what is often referred to as a ‘good start’ or ‘opening red’ for this periodWhile the equities segment faced withdrawal pressures, bond funds appeared almost immune to the bearish trends affecting stocks.

Active equity funds, which encompass ordinary stock types and various mixed funds, saw less than 2% of their products producing positive returns in early January

Advertisements

Conversely, the bond market thrived, showing strength and stabilityAmong 3,757 bond fund products with comparable data available, 3,068 managed to secure positive yields, representing over 80% of the totalLeading the pack was the Bosera 30-Year Government Bond ETF, which boasted a return of 1.72%. Other notable products included Huian Jiaxin Pure Bond and Dongwu Tianrui, which achieved returns exceeding 1.3%.

This robust performance led many bond investors to share their success stories on social media platforms, further promoting a unique culture around the term ‘egg collection.’ This tongue-in-cheek terminology is a reflection of the bond market's previous highs, where consistently rewarding yields became an expected norm.

As of January 3, among the 3,729 bond funds available for nearly a year, the average return stood at an impressive 4.77%, with over 90% earning positive returns, and around 60 funds even accruing yields above 10%.

The surge in performance has captured investor attention and drawn in capital, leading to a rapid expansion in fund sizes

Advertisements

For instance, the Pengyang 30-Year Government Bond ETF recorded a cumulative return of 24.15% over the past year and saw its scale balloon to 6.546 billion RMB—a staggering increase from a mere 353 million RMB at the end of 2023.

Overall, by the third quarter of 2024, the total scale of bond funds in the market increased from 9 trillion RMB at the beginning of the year to 10.27 trillion RMB, with 56.88% experiencing growth during the same periodNotably, smaller bond funds like ICBC Ruifeng and CICC Jinhe saw their sizes explode from 10 million RMB to over 2 billion RMB—with such growth showcasing the shift in investor preferences and confidence towards bonds.

Additionally, analyzing inflows reveals that the GF Dual Debt Adding Benefit A fund added 33.928 billion RMB over three quarters, while several other funds, including GF 7-10 Year National Development Bank A and Bosera CSI Convertible Bond ETF, also experienced substantial increases exceeding 20 billion RMB.

As it stands, the total number of bond funds exceeding a hundred billion in size has increased to 137, including products such as GF Xiaocai Short Debt A and Huaxia Stable Enjoyment Benefit 6-Month Rotation A, which saw their scales balloon by an impressive tenfold.

The question arises: why did the bond market achieve this excellent start? Analysts attribute this uptrend partly due to a notable “seesaw” effect between equities and bonds as stock markets declined

• Stocks on Brink? Fed Rate Hike Debate Heats Up
• Transaction Banks Tap Platform Strategy for Growth
• Strong Demand for Global Electric Vehicle Market
• Treasury Yields Hit New Low Amid Wealth Shift
• Crossroads of Wealth: Where Do You Stand?

Coupled with early-year institutional demand for bonds and an overall moderate easing of monetary policy, this set the stage for an accelerated rally in the bond market.

A report from Minsheng Securities explains that the central bank maintains a supportive monetary policy stance with prevailing expectations of further monetary easingWhile authorities are becoming more vigilant about interest rate risks and institutional buying behavior, the general outlook still reflects a commitment to supportive measures.

Funds are eyeing increased demand in the bond market due to stable liability financing, especially as fund subscriptions surge—pushing further aggressive bond-buying into early 2025. Additionally, the influx of premium flows brought on by the new year is acting as a stabilizing force within the bond market.

According to one fixed-income fund manager from Shanghai, this pre-New Year's configuration has strengthened the bullish sentiment within the market, which remains favorable for bonds, particularly as liquidity remains robust amidst persistent funds seeking adjustments to their portfolios

Even amidst rapid government bond issuance, asset scarcity continues to be a pressing issue.

Considering the current trends, the short-term monetary policy is expected to be a critical factor in shaping the market’s direction through JanuaryThis month is particularly significant, being the tax payment month and influenced by the forthcoming Lunar New Year cash extractions and pressures from government debt supplies.

Looking ahead, there are expectations for the bond market to maintain a slightly bullish trend while navigating inherent volatilityThe supportive monetary stance, combined with asset scarcity, paints a promising picture, though market watchers remain slightly wary of potential oversupply and resultant market corrections.

In sum, as we reflect on the resilient bond market, sentiments remain assertively bullish, particularly towards 10-year treasury bonds which continue to break through crucial levels