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【Introduction】Fund brokers increase their investment, and bond basket business continues to expand this year

China Fund News reporter Cao Wenjing

Since the beginning of this year, the bond basket business has continued to expand. Currently, many securities companies including Guotai Junan, Shenwan Hongyuan, CITIC, Huatai, CICC, and Orient, as well as many fund companies including China Merchants, GF, Fuguo, Southern, SPDR Ansheng, and Xinyuan have participated in it.

Many industry insiders said that the bond basket business can help institutional investors simplify the transaction process, efficiently carry out portfolio investment and mark-to-market management, and its emergence has pushed the interbank market to truly move towards the era of bond investment 2.0. This innovative trading mechanism is particularly in line with the needs of joint ventures for daily large-scale batch transactions and overseas institutions for diversified allocation of Chinese bonds.

Bond basket business continued to expand during the year

Since the China Foreign Exchange Trade System officially launched the bond basket business at the end of June 2023, the business has continued to expand. Currently, many large and medium-sized securities firms and fund companies are actively participating in the bond basket business.

Recently, Xinyuan Fund and GF Securities jointly launched the "GF Securities-Xinyuan Fund 3~5 Year National Development Bond Basket". The portfolio selects national development bonds with a remaining term of 2.5 to 5 years as the underlying bonds, and dynamically adjusts the underlying bonds according to market conditions. The "basket" currently consists of three bonds: 22 National Development 08, 23 National Development 08 and 24 National Development 02, and the minimum trading unit is a 30 million yuan par value bond.

In addition, Huatai Securities, Ping An Wealth Management and XCMG Group have recently launched the "Huatai Securities-Ping An Wealth Management-XCMG Group Service High-end Manufacturing Industry Bond Basket". It is understood that this is the first bond basket jointly created by investors, market makers and physical issuers in the interbank market.

In July this year, Shenwan Hongyuan Securities and Ping An Fund jointly launched a customized bond basket "Shenwan Hongyuan Securities-Ping An Fund 5-10 Year Active Treasury Bond Basket" to meet the asset allocation and trading needs of domestic and foreign investors for medium- and long-term treasury bonds. In June, Orient Securities and Bosera Fund jointly launched the "Orient Securities-Bosera Fund 1-3 Year National Development Bond Basket" to meet the trading needs of institutional investors for short-term bonds. In May, CITIC Securities and SPDB Ansheng Fund jointly launched the "CITIC Securities-SPDB Ansheng Fund 0-5 Year Central Enterprise Bond Basket". In the same month, Xinyuan Fund and Guosen Securities jointly launched a new interbank market basket for fund customization-"Guoxin Securities-Xinyuan Fund Commercial Gold Bond Preferred Basket".

Xinyuan Fund told reporters that the purpose of creating a bond basket is to meet the needs of domestic and foreign institutional investors for a basket of bonds for allocation and trading. Under the current cooperation framework between fund companies and securities firms, securities firms, as bond basket creation institutions, provide bilateral quotations. As investors, fund companies put forward trading needs for bond baskets, and trade by selecting bond baskets that meet the requirements, eliminating the tediousness of single bond trading. It helps fund companies simplify trading processes, conduct portfolio investment and market-marking management efficiently.

Data from the China Foreign Exchange Trade System shows that as of the end of July 2024, a total of 57 institutions provided quotes for 137 bond baskets, covering active interest-rate bonds, green bonds, regional local bonds, interest rate spread strategies, high-quality development bonds, perpetual bonds of central enterprises, science and technology innovation credit bonds of central enterprises, Guangdong-Hong Kong-Macao Greater Bay Area credit bonds, Yangtze River Delta credit bonds, forward delivery bonds of benchmark bonds, high-quality guaranteed credit bonds, etc., providing domestic and foreign investors with a variety of combination trading tools.

Helping to move towards the era of bond investment 2.0

Compared with single bond trading, bond basket trading has many advantages. Puyin Ansheng Fund said that the advantages of bond baskets are that they can provide standardized bond portfolio trading tools, which facilitates institutional investors to quickly configure a basket of bonds in one stop; second, the market making is provided by the basket creation institution, which improves the configuration flexibility and trading efficiency of bond assets; third, it solves the problem of insufficient liquidity and trading difficulties of some individual bonds to a certain extent; finally, institutional investors can buy and sell in baskets or trade in single bonds, which is flexible.

"The emergence of bond basket business has pushed the interbank market to truly move towards the era of bond investment 2.0." Bosera Fund believes that compared with bond index funds and bond ETFs, bond baskets are more flexible. Market makers can specify specific bonds in the basket at any time as needed. The procedures are simpler, there is no need to convert shares, and there is no tracking error. This business rule provides investors with more investment options and opportunities, and greatly improves the transaction management efficiency of bond funds. In addition, it can meet the allocation and trading needs of on- and off-site investors for bulk bonds, promote cross-market connectivity, and attract overseas investors to allocate and trade a basket of domestic RMB bonds, which plays a certain role in promoting the growth of bond fund scale.

Although there are many advantages, the current bond basket business has not been widely promoted. In terms of expanding the bond basket business, Puyin Ansheng Fund recommends that efforts can be made in the following aspects:

First, increase the diversity of market participants and products, encourage more financial institutions to participate in the creation and trading of bond baskets, and launch bond basket products with different maturities and risk-return characteristics to meet the needs of different investors;

Second, through technology upgrades and system optimization, further improve transaction efficiency, reduce transaction costs, and enhance transaction convenience;

Third, enrich the themes of bond baskets and develop more themed bond baskets, such as green bonds and regional development bonds, to attract investors with specific preferences;

Fourth, financial institutions should strengthen market education and publicity, increase market awareness of bond basket business, and strengthen investor education through training, seminars, etc.

Editor: Captain

Review: Xu Wen

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