What should I do about the adjustment of the bond market? Penghua fixed income gold team, please put away this "worry post"!

Since the beginning of this year, the domestic bond market as a whole has continued to strengthen, and the share of various types of bond funds has increased significantly. As of the end of the first quarter, the overall scale of bond funds in the whole market exceeded 9 trillion yuan, an increase of more than 3% from the previous quarter. Before the holiday, the bond market was affected by multiple factors such as the central bank's further reminder of market interest rate risks, and the bond market showed a trend of phased adjustment. It has caused many investors to worry.

Isn't that a good thing about bond funds? How to solve the worries of bond investment? What changes are taking place in the "three bowls of noodles" that affect the bond market - economic fundamentals, capital and sentiment?

Penghua Fixed Income, this May bond market "worry relief post", please put it away! Overall, looking forward to May, the economy is expected to further improve, with the gradual increase in bond supply, the bond market may return to rationality, and still have good allocation value in the medium and long term. Taking into account the low interest rate environment this year, market volatility may increase, and investors need to moderately reduce their income expectations in the allocation of bond bases.

The reason for the pre-holiday bond market adjustment has been found!

As for the reasons for the recent adjustment of the bond market, Zhu Song, general manager / fund manager of the bond investment department of Penghua Fund, believes that the market has a divided understanding of the economy in the first quarter, and the general "underallocation" of institutions since the beginning of this year has led to a continuous sharp decline in bond yields in the early stage, deviating from the reasonable pricing range. Recently, after the central bank's repeated risk warnings, the bond market has shown a trend of adjustment.

Liu Tao, general manager / fund manager of Penghua Fund Bond Investment Department II, analyzed that the economic data for the first quarter was released in April, with a year-on-year increase of 5.3% in GDP exceeding market expectations, and the indicators related to industrial production performed well. The U.S. economy remains resilient, inflation remains high, and market expectations for the Fed to cut interest rates within the year have declined significantly. Since April, the capital has shown a state of spontaneous easing, the funding rate has remained low, and the central bank has injected 2 billion yuan into the open market every day, reflecting the steady tone of monetary policy, and there is little need for further easing. The scale of government bond issuance in April was lower than that of the same period in previous years, and the plan for the issuance of 1 trillion yuan of special government bonds has not yet been announced. Against the backdrop of loose funds, bond credit spreads and term spreads were extremely compressed, and the yield on 10-year treasury bonds once fell below 2.22%, hitting a record low. In this regard, the central bank continuously prompted the risk of long-term interest rates during the month, and on the 23rd, it again reminded that the long-end interest rate had been significantly adjusted.

Fundamentals

Economic fundamentals remained stable in May

At the policy level, the tone set in the previous period continued

Although the current bond market is facing challenges, for the follow-up bond market, Penghua fixed income team experts generally believe that the economic fundamental data remains stable, and the relationship between supply and demand of bonds in the capital market is expected to be alleviated.

Liu Tao pointed out that looking forward to May, the economy is expected to further improve, and the central bank's monetary policy is expected to remain stable.

Fang Chang, deputy general manager of the multi-asset investment department of Penghua Fund, said that in 2024, the domestic economy will be on the way to gradual recovery, and the switch between old and new kinetic energy is an important macro main line at present. In terms of the bond market, in the context of reasonable economic growth, risk prevention and debt reduction, the overall market environment is favorable, and it is necessary to pay attention to the pace of government bond issuance in the future. Given the potential for increased market volatility in a low interest rate environment, earnings expectations need to be modestly lowered. For short- and medium-term assets, there is still a high cost performance. Considering that the economic fundamentals are stable and improving, the risk-free interest rate is volatile and downward, and there are still good structural opportunities in the direction of dividend assets and technological innovation, we will continue to pay attention to and attach importance to it strategically.

Wang Kangjia, assistant director of the cash investment department of Penghua Fund/fund manager, believes that the economic fundamental data in May remained stable, and the policy level continued to set the tone in the early stage. On the one hand, under the tone of the central bank's anti-aircraft turnaround, the price of funds has been constrained by the obvious downward trend, and on the other hand, under the current situation of small space for leveraged arbitrage, the willingness of non-banks to increase leverage is low, and the demand for funds has decreased.

Funding side

The supply of bonds (long-end varieties) has gradually increased

The bond market may return to rationality

In Zhu Song's view, with the gradual increase in the supply of bonds (especially long-end varieties), the market may return to rationality, the bond market may still have volatility adjustment risks, in the medium and long term, the central bank's monetary policy still has room to relax, judging that the bond market still has a good allocation value.

Liu Tao believes that the scale of government bond issuance has increased marginally compared with April, and the situation of short supply in the bond market is expected to be gradually eased, and the interest rate of 10-year government bonds will find a "reasonable range that matches long-term economic growth expectations" mentioned by the central bank in the game. At the moment when the interest rate point and interest rate spread level are low, you can do a good job of defense and wait for the opportunity to intervene after adjustment.

Deng Mingming, assistant general manager/fund manager of Penghua Fund Bond Investment Department, said that the volatility of the bond market may increase in May, but the overall will still be in the shock range. The decline in non-bank financing costs in April led to the compression of various interest rate spreads, such as credit spreads, term spreads, and variety spreads, and the market's expectations for loose liquidity were relatively consistent. With the gradual increase in bond supply in May, the volatility of non-bank financing costs is likely to increase, which will put pressure on the valuation of bonds, especially credit bonds. However, since the current overnight repo rate is still high, and the economic fundamentals do not support a sharp tightening of liquidity, interest rates are still likely to fluctuate around a certain pivot. The market opportunity will come from the decline in the overnight repo rate pivot, and the risk may be an increase in the volatility of the funding side. There has been no significant reversal in the interest rate trend for the time being.

Emotional side

The issuance of special government bonds and local government bonds increased

or disturb market sentiment

Wang Kangjia said that the current residents' risk appetite is low, and the rapid expansion of wealth management and short-term bonds and other products is expected to continue in May, and the asset shortage pattern is difficult to alleviate in the short term, and the bond market may continue to fluctuate strongly in May. In terms of risks, we are concerned about the increase in the issuance of special government bonds and local government bonds, which will disrupt market sentiment. Considering the increase in bond supply, there is a certain possibility of a RRR cut, which will lead to the opening of short-end space and the steepening of the curve.

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