Since the end of September, influenced by the high sentiment in the equity market, the bond market has undergone a significant adjustment. As the equity market sentiment subsides, the bond market is gradually stabilizing.

Many industry insiders believe that this market adjustment is mainly related to the performance of the stock market, with controllable redemption pressure and manageable market reversal risks. The valuation cost-effectiveness of credit bonds has improved, and the interest rates of most rate bonds and credit bonds have now entered the desirable points for institutional allocation.

Looking ahead, market analysts say that the current liquidity has stabilized, and October is a seasonal inflow period for wealth management funds. It is expected that after the middle and lower parts of the month, the liability side of wealth management will be more balanced, which is conducive to stabilizing the bond market's allocation demand.

It is worth noting that in recent years, each adjustment in the bond market has triggered market concerns about negative feedback redemptions of fixed-income products. Industry insiders suggest that asset management companies, investors, and regulatory authorities work together to further improve the mechanisms that promote the stable operation of the bond market.

The bond market is gradually stabilizing.

Since the end of September, due to the high sentiment in the equity market, the bond market has undergone a huge adjustment, with yields once soaring significantly. However, recently, as the equity market sentiment subsides, the bond market is gradually stabilizing.

As of the close on October 12th, the yield on one-year government bonds fell by 2.5 basis points to 1.41%, the yield on five-year government bonds fell by 0.75 basis points to 1.79%, and the yield on 30-year government bonds was reported at 2.295%, recovering the 2.3% threshold.

Credit bond yields also fell across the board. A credit bond trader told a reporter from Shanghai Securities News that credit bonds that previously required a significant premium to trade now have significantly lower yields, "In one day, the market has shifted from being in a hurry to sell bonds to seeking to buy high-yield credit bonds."

Zhou Yue, head of the fixed income research department at Caitong Fund, believes that as the level of government bond yields has risen significantly, the allocation needs of some institutions have been released. Since the beginning of the year, bond market investors have gradually formed an investment logic that each adjustment is an opportunity to "get on board," and the significant adjustment in the bond market has provided relatively stable institutions with good buying conditions.

"In terms of credit bonds, the bond market has adjusted recently, but the reversal risk is still controllable, and the valuation cost-effectiveness of credit bonds has improved. However, due to poor liquidity and weak market sentiment, the impact of subsequent wealth management liability and redemption pressure needs to be observed. At present, medium-short duration, medium-high grade varieties may be given priority." said Zhou Yue.Ping An Wealth Management also believes that the bond market is expected to gradually stabilize. October is a seasonal inflow period for wealth management funds, and it is expected that after the middle and late parts of the month, the liability side of wealth management will be more balanced, which is conducive to stabilizing the bond market's allocation demand; at the same time, the current domestic monetary policy is still in a loose cycle, and the stock and bond markets are not opposed to each other. The short-term shocks caused by emotions are all allocation opportunities in hindsight.

The rapid rise in the stock market is the cause.

Regarding whether the adjustment of the bond market this time will trigger negative feedback redemption risks for fixed-income products, many industry insiders have said that the main reason for this market adjustment is related to the adjustment of the stock market. As the stock market gradually stabilizes, the bond market will also gradually stabilize, and the redemption pressure will gradually ease.

Yang Yewei, a fixed-income analyst at Guosheng Securities, said that the initial trigger for this redemption was mainly the rise in the stock market, leading to concentrated redemptions of cash management and other wealth management products. However, as the stock market sentiment gradually stabilizes, the redemption pressure on wealth management and bond funds will weaken, and the selling pressure on credit bonds will ease. Recently, under the rapid rise of the stock market, many residents have redeemed wealth management and increased the allocation of equity assets, among which cash and quasi-cash wealth management products have faced the greatest redemption pressure. Under the pressure of redemption, in order to maintain liquidity, wealth management has turned to redeem bond funds, further passing on the redemption pressure to bond funds.

"As the stock market gradually stabilizes, the redemption pressure on cash and quasi-cash wealth management and bond funds will also weaken, and the selling pressure on credit bonds and certificates of deposit will also ease," said Yang Yewei.

Lv Pin, the chief fixed-income analyst at Debon Securities, believes that the difference between the redemption concerns in the past few rounds this year and the biggest difference in 2022 is that from November 2022 to January 2023, wealth management showed a clear continuous net selling, with a scale close to 830 billion yuan. However, in the past few rounds of adjustments from 2023 to 2024, wealth management did not have a continuous net selling, and the net value performance during this period was relatively controllable.

Improve the mechanism to promote the stable operation of the bond market.

In fact, in every round of bond market adjustments in recent years, the market has repeatedly expressed concerns about negative feedback redemptions. To build a robust bond market, it requires the joint efforts of regulators, asset management companies, and investors.

Zhang Xu, the chief fixed-income analyst at Everbright Securities, believes that it is appropriate to further improve the mechanism to promote the stable operation of the bond market. Whether it is this stage or the rise in bond yields in the fourth quarter of 2022, one of the key triggering factors is the obvious decline in market interest rates in the early stage. In the trend of bond yields unilaterally falling, although many investors have seen the risks contained, under the effect of the money-making effect and the horse racing mechanism, they have no choice but to increase their risk exposure, so only financial regulatory authorities have the ability to block the accumulation of risks.

"We believe that a counter-cyclical regulation mechanism can be established to dynamically and reasonably constrain the duration, leverage ratio, high-liquidity asset ratio, and other key indicators of institutional investors' assets," said Zhang Xu.Additionally, a person in charge of the wealth management channel department at a certain bank told the reporter that it is necessary to popularize the basic knowledge and market rules of bond investment through online and offline training, seminars, and other forms, to help investors understand the operation mechanism and risk characteristics of the bond market. Regularly issue bond market risk warnings, educate investors on how to identify and prevent market risks, and improve their ability to identify risks and protect themselves.

"In terms of specific measures, banks can carry out investor education through various channels and forms. For example, by publishing wealth management classes, wealth management live broadcasts, and other content on multi-media platforms such as official WeChat public accounts, direct banks, and marketing platforms, the readability and audience range of the content can be improved by combining cases with theories," said the person above.