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On July 30, treasury bond futures closed higher across the board. The main 30-year contract rose 0.48% to 111.36 yuan, setting a record closing high. The main 10-year, 5-year and 2-year treasury bond futures also closed higher.

This is a microcosm of the bull market in the bond market this year. Although the authorities have repeatedly called for attention to long-term bond interest rates, under the "catalysis" of interest rate cuts, on the 30th, the 10-year Treasury bond yield was 2.14%, while the 30-year Treasury bond yield fell below 2.4%.

The bond market is bullish, and bond funds are also popular among investors. According to the second quarter report of Tianxiang Investment Consulting Comprehensive Fund, the scale of bond funds increased by more than 1.6 trillion yuan in the first half of the year, of which about 1.17 trillion yuan increased in the second quarter, bringing the total scale of bond funds to 10.2 trillion yuan, which is also the first time that the scale of such funds has exceeded 10 trillion yuan.

How are bond funds performing? What are fund managers' ideas for trading? The second quarter report revealed many signals.

Average annual return of medium- and long-term pure bond fundsRateAt 2.62%, Jinxin Minfu A ranked last

As market interest rates decline and stock markets fluctuate greatly, the yields of bond funds become more competitive.

Wind data shows that as of the close of July 30, the average year-to-date return of 3,174 medium- and long-term pure bond funds was 2.62%, with a median return of 2.71%; the average year-to-date return of 807 short-term pure bond funds was 1.94%, with a median return of 1.93%.

Taking medium- and long-term pure bond funds as an example, as of the close of July 30, the top five funds in terms of year-to-date returns were Hua Xia Dingqing One-Year Fixed-Term Open-End Fund, Huatai Baoxing Anyue A, Guotai Huifeng Pure Bond A, Bosera Yuli Pure Bond A, and Xinghua An Yuli Bond A, with returns of 9.7%, 8.09%, 7.51%, 7.28% and 6.86% respectively so far this year.

In its second quarter report, Hua Xia Dingqing One-Year Fixed-Term Fund stated that during the reporting period, the portfolio maintained relatively active holdings, kept a relatively high portfolio duration and leverage level, and strived to obtain rising returns in the bond market.

Huatai Baoxing Anyue A stated in its second quarter report that during the reporting period, the fund increased its holdings of some medium-term treasury bonds and reduced its holdings of some treasury bonds. Combined with the swing operations of interest-rate bonds, the overall performance of the portfolio was good in the second quarter.

"The overall liquidity was maintained in the second quarter of 2024, and the bond market continued to decline after a brief period of volatility. The term spread and credit spread continued to compress. This fund gradually increased its credit bond holdings during the quarter and flexibly participated in interest rate bond swing operations. It adopted an overall neutral leverage and high-duration strategy and achieved good investment returns." This is what Cathay Huifeng Pure Bond A said in its second quarter report.

However, even though the bond market is bullish, some medium- and long-term pure bond funds are still suffering losses.

Also, as of the close of July 30, many funds including Jinxin Minfu A, Hexu Zhiyuan Jiayue Interest Rate Bond A, and Hua Xia Dingfu A all suffered losses.

Among them, Jinxin Minfu A suffered the largest loss, with an annual return of -9.68%. The fund was established not long ago, on November 28 last year. Its second quarter report showed that it mainly invested in policy financial bonds, which accounted for as much as 81.17% of the fund's net asset value. In terms of investment operations, the fund took into account the needs of liquidity management and adopted an investment strategy of mainly medium- and short-term interest-rate bonds and moderately extending the duration to maintain high liquidity and low leverage of the portfolio.

The annual return of Hexu Zhiyuan Jiayue Interest Rate Bond A is -0.53%, which may be due to the short establishment time of the fund. The fund was established on July 11 this year.

The annual return of Hua Xia Ding Fu A is -0.43%. The second quarter report of the fund shows that it is also mainly allocated to policy financial bonds, accounting for as much as 100.02% of the net asset value of the fund.

It is worth mentioning that Shell Finance reporters also found that although the overall scale of bond funds is increasing, the scale of some bond funds has dropped significantly in the second quarter.

For example, the Golden Eagle Tianying Pure Bond Fund, as of the second quarter of this year, the total size of the fund was 1.708 billion yuan, a sharp drop of more than 7 billion yuan compared with the total size of 9.504 billion yuan at the end of the first quarter of this year. The same is true for Nanhua Value Qihang Pure Bond Fund, Bose Yuli Pure Bond Fund, Huatai Fengtai Pure Bond Fund, etc. The total size of these funds shrank by more than 5 billion yuan in the second quarter.

A similar situation also exists in short-term pure bond funds. The combined size of the two funds, Changxin 30-day rolling holding and Minsheng Jiayin Jiaying half-year, shrunk by more than 5 billion yuan in the second quarter.

Data source: Wind.

Shell Finance reporters learned from industry insiders that bond funds have seen large-scale changes on a quarterly basis, and the high probability is that institutions are taking profits and redeeming. After all, the bond market has been bullish for a long time and the current volatility has increased. Taking profits may be a temporary choice for investors.

In the second quarter, the investment proportion of interbank certificates of deposit increased. When selecting funds, pay attention to historical performance

Overall, in the bond allocation of bond funds in the second quarter, the proportion of interest-bearing bonds and credit bonds decreased slightly, while the proportion of NCD (interbank certificates of deposit) increased.

According to data from Industrial Securities' research report, in terms of bond fund allocation, at the end of June 2024, interest-bearing bonds (including treasury bonds and financial bonds), credit bonds (including corporate bonds, short-term bonds and medium-term notes), NCDs, convertible bonds and ABS (asset securitization) accounted for 60.72%, 31.56%, 4.00%, 1.88% and 0.31% of bond fund holdings, respectively. Compared with the end of the first quarter of this year, the proportion of interest-bearing bonds and credit bonds both decreased slightly, while the proportion of NCDs increased by 1.54 percentage points.

The research report analyzed that in the second quarter, after the standardization of "manual interest payment" for deposits, a gap in bank liabilities appeared, the demand for NCD issuance increased, the one-year NCD interest rate was higher than the yield of credit bonds with the same term, and the bond fund industry correspondingly increased the allocation ratio of NCDs.

From the perspective of duration strategy, bond funds generally lengthened their duration in the second quarter. According to data from Industrial Securities' research report, from the weighted average remaining term of the top five heavily-weighted bonds of various bond funds, at the end of June 2024, the duration of bond funds from high to low was 2.90 years, 2.87 years, 2.86 years, 2.22 years and 1.01 years for secondary bond funds, medium- and long-term bond funds, primary bond funds, passive index bond funds and short-term bond funds, respectively. Compared with the end of the first quarter of this year, the duration of secondary bond funds, medium- and long-term bond funds, primary bond funds, passive index bond funds and short-term bond funds increased by 0.56 years, 0.43 years, 0.66 years, 0.28 years and 0.06 years, respectively.

Looking ahead to the future market, the overall environment of the bond market remains relatively friendly as the fundamentals have not yet reversed, the real estate industry has not bottomed out and rebounded, and the central bank's monetary policy remains loose.

Huabao Securities has compiled the views of representative fund managers. Overall, fund managers generally believe that the macroeconomic environment and general policy tone in the third quarter will remain favorable for the bond market, but there may be institutional under-allocation and supply risks, and exchange rates limiting the room for interest rate cuts. In terms of the convertible bond market, most fund managers hold a cautious view and tend to explore structural opportunities.

However, even if the bond market is bullish, the risk of long-term bond interest rates still deserves special attention. According to an analysis by Orient Securities Research, after the sharp decline in interest rates last week, the market may have already priced in the benefits of the unexpected rate cut, and the long-term bond interest rate breaking through the previous low may trigger the implementation of the central bank's bond selling operation. Therefore, it is necessary to remain cautious in continuing to chase the rise in long-term bonds, but adjustments are still opportunities for intervention.

So, if investors want to invest in bond funds, what are some tips for selecting funds?

For investors who pursue stability, pure bond funds are a better choice. Among them, short-term bond funds have lower risks, while medium- and long-term pure bond funds have longer portfolio durations, higher risks and expected returns, and their net value fluctuations will be relatively large.

If investors are willing to take some risks, they can also choose primary bond funds, secondary bond funds, convertible bond funds, etc. Among them, primary bond funds cannot directly invest in stocks through the second quarter market, but can invest in stocks through new stock subscription, convertible bond conversion, etc. Secondary bond funds can participate in stock investment through the secondary market. Convertible bond funds have at least 80% of their bond assets invested in convertible bonds. These funds are more volatile than pure bond funds, but the probability of obtaining higher returns is also greater.

In addition, investors can also select funds by observing the historical performance of bond funds. For example, they can see whether the long-term performance of bond funds can outperform the benchmark, pay attention to the maximum loss of bond funds over a certain period of time and whether they can bear it, etc. They can also pay attention to the time it takes for bond funds to repair drawdowns and understand the fund manager's performance repair capabilities.

Beijing News Shell Financial Reporter Pan Yichun Editor Yue Caizhou Proofreading Lu Qian