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As the National Association of Financial Market Institutional Investors called on individual institutions to initiate self-discipline investigations, the bond market suddenly cooled down and experienced large fluctuations.

Under this circumstance, the market is worried about the reappearance of the "negative feedback" of financial management at the end of 2022, but from the current point of view, the financial management market is relatively calm. However, bond funds with a higher proportion of fixed-income asset allocation have been "injured". Since August alone, four funds have issued announcements to increase fund precision.

Financial products have not yet seen “negative feedback”

On August 7, the National Association of Financial Market Institutional Investors issued an announcement, saying that it had found that Jiangsu Changshu Rural Commercial Bank Co., Ltd., Jiangsu Jiangnan Rural Commercial Bank Co., Ltd., Jiangsu Kunshan Rural Commercial Bank Co., Ltd., and Jiangsu Suzhou Rural Commercial Bank Co., Ltd. were suspected of manipulating market prices and transferring benefits in the secondary market of treasury bonds, and initiated a self-discipline investigation on the above four institutions. Affected by this, the yield of active 10-year treasury bonds rose 3.5bp from 2.14% to 2.175% on August 8, and the yield continued to rise by 2.5bp on August 9.

The bond market has seen a major shock. The 10-year Treasury yield has risen by as much as 17bp in the past week, and the main 10-year Treasury bond has also seen a significant pit. Such a huge adjustment in a short period of time has made investors worry about the possibility of a recurrence of "negative feedback" in financial management in the fourth quarter of 2022.

This year, under the influence of deposit migration, the scale of bank wealth management has been rising steadily. According to statistics from CITIC Securities, the scale of the wealth management market reached 29.94 trillion yuan at the end of July, an increase of about 1.42 trillion yuan from the end of June, and a monthly growth rate of about 4.99%.

The market is worried that the correction in the bond market will cause the net value of products to fall, and the decline in net value will lead to a wave of redemptions and further declines. However, analysts believe that "this time is a little different." Li Yong, chief fixed income analyst at Soochow Securities, said that the current structure of wealth management has changed compared to 2022.

Li Yong said that according to the quarterly report data of bank wealth management, it is not difficult to find that since the redemption wave in the fourth quarter of 2022, wealth management has significantly reduced the allocation ratio of fixed-income assets, from 88.77% in the fourth quarter of 2022 to 61.24% in the first quarter of 2024, and instead increased the proportion of cash and bank deposits, from 4.36% in the fourth quarter of 2022 to 26.6% in the fourth quarter of 2024.

Li Yong analyzed that due to this change, the ability of wealth management products to resist bond market risks has been significantly enhanced, and wealth management investors have gradually adapted to the volatility of products after net value, and investment behavior is expected to become more rational. In addition, the loss threshold of the dumbbell-type portfolio with a holding period of 6 months, which has the lowest tolerance for the upward range of yields, is 20bp, corresponding to the 10-year Treasury yield of about 2.3%, and the corresponding long-term Treasury yield range of 2.5%-3%. However, too fast an upward range of yields will also induce systemic risks. Therefore, it is expected that the 10-year Treasury yield will fluctuate in the range of 2.2%-2.3% after the upward range, and will not reach the level of causing "negative feedback".

Xiao Yu, chief fixed income analyst at Zhongtai Securities, also said that since the beginning of this year, the bond market has been good, the scale of wealth management products has increased significantly, and the yield performance has also been good. On August 4, the scale of wealth management products was about 29.77 trillion yuan, an increase of 3.47 trillion yuan from the end of 2023. The monthly average annualized yield has been 3.4% or above since the beginning of the year. As the central bank continues to remind of the risks of long-term bonds, major banks sold interest-bearing bonds last week, the bond market has undergone certain adjustments, and the yield of wealth management products has declined significantly. On August 11, the average annualized yield of wealth management products in the past 7 days was 2.4%, a decrease of 193bp from the previous week. By type, cash management is 1.75%, a decrease of 3bp from the previous month; fixed income is 3.05%, a decrease of 147bp from the previous month, of which pure fixed income is 3.45%, a decrease of 85bp from the previous month, fixed income + is 2.81%, a decrease of 178bp from the previous month; the yield of mixed type turned negative, at -7.61%.

"Under such circumstances, the market is worried about whether the 'big players' in the bond market - wealth management - will lead to an intensification of 'negative feedback' due to redemption pressure. Judging from last week's data, the scale of wealth management remained stable. On August 11, the outstanding scale of wealth management products was approximately 29.77 trillion yuan, an increase of 2.2 billion yuan from the previous week." Xiao Yu said.

Many bond funds suffered large redemptions

However, compared with wealth management products, bond funds are not so lucky. Some products have to adjust the accuracy of their net value due to large redemptions. On August 13, GF Fund announced that the Class D fund shares of GF Jingyuan Pure Bond Securities Investment Fund (hereinafter referred to as GF Jingyuan Pure Bond D) had a large redemption on August 12, 2024. In order to ensure that the interests of fund unit holders are not adversely affected by the decimal point retention accuracy of the net value of the shares, starting from August 12, 2024, the net value accuracy of the fund shares will be increased to 8 decimal places, and the 9th decimal place will be rounded up.

For a single fund, large redemptions often occur in bond funds where a single institutional holder accounts for a high proportion. Such funds are not large in size but have a high proportion of shares held by a single institutional holder. Therefore, when the institutional investor chooses to redeem the fund shares for some reason, although the redemption amount may not be high, it will cause a huge redemption for the fund, which is likely to cause abnormal fluctuations in the fund's net value.

Data shows that the net value of GF Jingyuan Pure Bond D unit shares was reported at 1.0868 on August 12, a single-day drop of -0.13%.

Coincidentally, Zheshang Fund also announced that Zheshang Huijin China Bond 0-3 Year Policy Financial Bond Index Securities Investment Fund had a large redemption on August 9. In order to ensure that the interests of fund holders are not adversely affected by the decimal point retention accuracy of the net value of the shares, the company and the fund custodian have agreed to increase the net value accuracy of the fund to six decimal places from August 9, and round up the seventh decimal place.

A number of bond funds have recently issued similar announcements. According to data from Tonghuashun, four bond funds have announced adjustments to their accuracy in August. If the time is extended to July, the number has increased to 38, of which 35 are bond funds, involving fund companies such as Zheshang, Xin'ao, Yongying, Shenwan Lingxin, Caitong, and Fengchao.

Feng Hao, research director of Jurong Asset, said in an interview with reporters that the reasons for client redemption may be various, such as their own liquidity needs, changes in views on the subsequent bond market, product net value retracement, losses exceeding the risk tolerance range, etc. The recent continuous adjustment of the bond market and the continuous retracement of the net value of bond products may be the main reason for client redemption. In addition, unlike bank wealth management products, most of the clients of bond-type public funds are institutional investors with strong behavioral consistency. When the market adjusts rapidly, fund companies are more likely to encounter concentrated redemptions and large redemptions.

A person from a public offering product department said that when a small fund encounters a large amount of redemption, it will bring a high impact cost, and it is necessary to remind investors of the risks by improving the accuracy of the net value. For investors, before the fund valuation method is improved, they should stay away from funds with a high proportion of institutional holdings and a high probability of redemption.

However, most institutions believe that the current adjustment of the bond market has basically come to an end. Yan Ziqi, chief fixed income analyst at Huaan Securities, said that the recent correction pressure in the bond market has emerged. The curve has flattened after the large banks continued to sell bonds. From the perspective of individual bond space, the "inventory" of the large banks with a 10-year term may have been reduced. In the short term, the largest short position in the bond market may be the non-bank institutions with floating profits in the previous period. Recently, the marginal funds have turned to net selling, and the behavior of products such as securities asset management is not sensitive to interest rate changes. The subsequent redemption pressure can be paid attention to. On the other hand, historically speaking, the bond market should be cautious in August. The background of the interest rate inflection point is usually a combination of "policy introduction + supply acceleration + capital tightening". Although the current bond market has certain expectations and pricing for this, its marginal changes may aggravate the overall volatility of the bond market under the influence of profit-taking sentiment. In the short term, we can seize the opportunity of curve flattening and adjustment to increase positions appropriately.