Publicly offered mutual funds' second-quarter reports have been successively disclosed, with the scale of pure bond funds continuing to rise in the first half of the year.

According to First Financial, based on Wind statistics, as of the end of the second quarter of 2024, the total net asset value of bond funds was 10.6 trillion yuan, accounting for 34.53% of the industry, and it has the largest net asset value proportion within the category of non-monetary funds. Compared to the 9.33 trillion yuan at the end of the first quarter, it increased by 1.27 trillion yuan.

While the scale is growing, bond funds have started to impose purchase restrictions intensively. According to Wind statistics, since July 2024, at least 224 pure bond funds have issued "purchase restrictions," among which about 200 medium to long-term pure bond funds have suspended subscription or large-amount subscription services.

Zeng Hengwei, a wealth management partner at Paipai Network, analyzed that the global low-interest-rate environment has prompted investors to seek higher-yield investment products. As a relatively stable investment tool, bond funds have attracted a lot of attention from investors. In addition, some fund companies have increased their efforts to promote bond fund products, which has also promoted the expansion of the scale of bond funds. From the early conclusion of the collection of many bond funds, the current market expects a higher return on bond funds.

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In the market, the bond investment environment has recently shown a complex and changeable trend. Gu Feichen, the fund manager of CITIC Prudential Zhi Tai Short-term Bond Fund, analyzed to First Financial that the interest rate bond curve has been steeply downward overall, and the funds were relatively loose in the second quarter. After the prohibition of manual interest supplements, some deposits flowed into non-bank institutions, the phenomenon of capital stratification was alleviated, and the allocation strength of medium and short-term bonds increased, driving the medium and short-term yield to significantly decline.

The scale of bond funds continues to rise

Specifically, as of the end of the second quarter of 2024, there were a total of 12,028 funds in the market, with a total net asset value of 30.71 trillion yuan. Among them, bond funds, with their steady growth momentum, have become the focus of market attention.

First, in terms of quantity, the number of bond funds is 3,663, accounting for 30.45% of all funds, and the number has increased by 110 compared to the first quarter of 2024.

In terms of scale, as of the end of the second quarter, the total net asset value of bond funds was 10.6 trillion yuan, accounting for 34.53%, and it has the largest net asset value proportion within the category of non-monetary funds. Compared to 9.33 trillion yuan in the first quarter of 2024, it increased by 1.27 trillion yuan.

At the same time, the share of bond funds also shows a gradual upward trend. Compared to the share of 7.69 trillion shares in the second quarter of 2023, the share increased to 9.66 trillion shares in the second quarter of 2024.In bond funds, medium to long-term pure bond funds and short-term pure bond funds have stood out in performance. As of the end of the second quarter of 2024, the number of medium to long-term pure bond funds was 1,994, accounting for 16.58% of bond funds. Their net asset value was 6.45 trillion yuan, representing 21% of the total.

Looking at the period return, among the medium to long-term pure bond funds, Huatai Zijin Zhihui Dingkai C topped the net value growth rate in the second quarter with 6.47%, followed by Bosera Yu Li Pure Bond C, Bosera Yu Li Pure Bond A, Yuanxin Yongfeng Xingrui 6 Months, and Huaxia Dingqing Yearly Dingkai, with four funds having returns exceeding 5%.

Conversely, the largest loss during the reporting period was Xin Ao An Sheng Pure Bond C, with a net value growth rate of -2.8% in the second quarter, followed by BOC Jia Xiang 3 Months Dingkai D and C, with both funds experiencing a loss exceeding 2% during the reporting period.

Short-term bond funds are favored

Although the number of short-term pure bond funds is relatively small, at 338, their net asset value also reached 1.49 trillion yuan, accounting for 4.86%.

Among them (based on consolidated net asset value statistics), the largest scale of short-term bonds is the Great Wall Short-term Bond, with a net asset value of approximately 41.22 billion yuan as of the end of the second quarter of 2024. In addition, there are 10 short-term pure bond funds with a scale exceeding 20 billion yuan, including Bank of Communications Stable Profit Medium and Short-term Bonds, Harvest Huixin Medium and Short-term Bonds, Harvest Huixin Medium and Short-term Bonds, Harvest Super Short-term Bonds, and Huaxia Medium and Short-term Bonds.

Among short-term pure bonds, Pengyang Ji Ji Xin 90 Days topped the net value growth rate in the second quarter of 2024, with a growth rate of 2.7% during the reporting period, followed by Chuangjin He Xin Credit Dividend A and CITIC Prudential Zhi Tai Medium and Short-term Bond A, with the net value growth rate of shares over the past three months being approximately 1.75% and 1.68%, respectively.

However, some short-term pure bond funds have suffered significant losses, such as ICBC 7 Days Financial Management B, which had a net value growth rate of -7.8% in the second quarter.

"Short-term bond products and medium to long-term bond products are suitable for different types of investors," said Zeng Hengwei. Short-term bond products have a shorter investment period and can be redeemed quickly, making them suitable for investors with higher liquidity requirements; medium to long-term bond products have a longer investment period and can achieve higher interest income, but they need to bear certain market risks and liquidity risks, making them suitable for investors with higher return requirements and those who wish to allocate assets through bond funds.

Is the market overheating?The bond fund market is attracting a significant inflow of capital, which has also led public fund institutions to control their scale through purchase restrictions.

Wind data indicates that since July 2024, at least 224 pure bond funds have issued "purchase restrictions," with about 200 medium to long-term pure bond funds suspending subscriptions or large-sum purchases.

Industry insiders believe that the recent restrictions on short-term bond fund purchases may be related to the high volume of fund subscriptions. To control the growth rate of the fund's scale and ensure its stable operation, fund managers may adopt measures to limit large-sum subscriptions.

Looking at the trend of the bond market this year, HSBC Jintrust Fund analysis suggests that the economic fundamentals have been recovering in a convoluted manner in the first half of the year, with social financing data remaining weak. The misalignment of fiscal and monetary policies, as well as policy expectations, has led investors to continuously shift their asset allocation towards bond assets, resulting in a downward shift in the bond yield curve and bond rates and credit spreads reaching historical lows.

However, HSBC Jintrust Fund believes that the overall coupon income of bond assets is not high at present, and it is necessary to lower expectations for bond asset returns in the second half of the year. By managing the duration of bonds, efforts should be made to increase returns. It is important to focus on the interplay between bond supply and the operation of monetary policy tools within the year, to track the implementation of fiscal funds and the recovery of economic momentum in a timely manner, and to closely monitor changes in the global economy.

"In the domestic market, despite the central bank's previous warnings about the risks of long-term bond trading, as the market gradually digests the risks, the central bank announced on July 1 that it would carry out government bond lending operations, leading to a noticeable rise in long-term interest rates," Gu Feichen analyzed for First Financial, stating that the current credit spread is further compressed, and in the context of interest rates being more volatile, the value of credit coupons may also be quite limited. In terms of convertible bonds, the current pure bond yield is relatively low, and investors may have a need to allocate assets with rights to enhance returns. However, in the short term, investors still have a need to shift towards safer investments.

Looking ahead to the third quarter of 2024, Gu Feichen expects that under high interest rates, the U.S. economic fundamentals may cool marginally, but inflation may experience some fluctuations, and the timing of the Fed's interest rate cuts still needs to be observed. In terms of inflation, it is expected that the CPI will show a slight positive increase on a year-over-year basis in the third quarter, while the PPI will continue to maintain a negative growth. In addition, with the global inventory cycle being synchronized, China's exports still have resilience, but companies may face increased revenue without increased profits. It is anticipated that the recovery of domestic demand will be slow, and the debt cycle may still tend to move downward.