The debt base reappears and large redemption "serial robbery" is difficult to repeat

The plot of successive large redemption of the debt base is staged again. Since September, more than 10 bond funds or partial bond hybrid funds have announced large redemption in succession, behind which the bond bull market that has lasted for more than half a year suddenly stalled. Recently, the adjustment range and duration of the bond market exceeded market expectations, and the short-term yield of the bond base has been "negative".

Looking back at the recovery of the debt base redemption at the end of November 2022, the scene of "serial stampede" is still vivid, which has aroused the concern of investors. Similar to the last round of trend, due to the high level of market leverage, the agency has the incentive to stop earning and cash in, and the uncertainty of policy expectations, the bond market is facing short-term adjustment pressure. However, insiders believe that from the perspective of macro environment and institutional behavior, the adjustment of the bond market will be far less than the end of 2022, and the possibility of further diffusion of redemption and negative feedback is low. In addition, after learning from the experience and lessons of the last round of trampling on the market, institutional investors have improved on both the investment side and the channel side, and have taken precautions to deal with liquidity risks by optimizing the system design, product structure and fund portfolio management.

Short term yield of bond base has been "negative"

On September 14, the three bond funds successively issued announcements to improve the accuracy of the net value of fund shares. The BOC Fund announced that the Class B shares of the 1-3 year CDB bond index fund of BOC China Bond would be redeemed in large amounts on September 13, 2023. To ensure that the interests of fund share holders would not be significantly affected by the decimal point retention accuracy of the net value of their shares, BOC Fund and the fund custodian reached consensus, It was decided to improve the accuracy of the net value of Class B fund units to eleven decimal places and round the twelfth decimal place from September 13. The Fund will restore the precision of net value agreed in the Fund Contract when the above matters no longer have a significant impact on the interests of Fund Unitholders, and no further announcement will be made at that time.

In addition, the Class C shares of Hongta Red Earth Ruixin Pure Bond Fund, a fund of Hongta Red Earth Fund Company, will be redeemed in large amount on September 12, 2023, and it is decided to improve the precision of the net value of Class C shares of the fund to the eighth decimal place, and the ninth decimal place will be rounded off.

On the same day, Pengyang Fund also announced that the Class D shares of Pengyang Lifeng short-term bond fund were redeemed in large amount on September 12, 2023. From September 12, 2023, the precision of the net value of the Class D fund shares of the fund was improved to eight decimal places.

According to incomplete statistics, since September, more than 10 bond funds or partial bond hybrid funds have issued announcements to improve the accuracy of net worth, all due to large redemption.

Behind the recent series of redemption actions is the sudden collapse of the bond bull market. With the adjustment of stamp duty, the intensive implementation of policy combinations such as "buy houses but not buy loans", the yield of 10-year treasury bonds has been rising. In the past month, the short-term yield of bond funds has been "negative". According to data, as of September 17, in the past month, 2504 of 3245 bond funds (calculated separately for different shares) had lost their yields, accounting for more than 70%.

Most of the bond funds that were subject to large redemption this time were held by institutional investors, or had suffered the loss of institutional investors before. Now they have become mini products and only a few individual investors hold them. As for the reasons for the large redemption of institutional clients, Ping An Fund said that, in general, it is based on its own liquidity requirements and investment decision considerations, or based on subsequent market judgment considerations, when the market is facing adjustment.

"On the one hand, bank financial institutions, based on the experience and lessons learned in December last year, redeemed the debt base in a preventive manner to cope with the redemption of individual customers under the situation of continuous rising interest rates; on the other hand, or some institutions believe that the effect of the loose real estate and loose fiscal policy will gradually emerge, and fundamental factors will lead to the callback of the bond market, reducing the exposure of the bond market from the perspective of asset allocation of a large category." Wu Wen, fund manager of Guoshou Security Fund, said: "Policies such as down payment and interest rate reduction of real estate continue to be introduced, and the economic fundamentals are expected to improve marginally."

Lv Zhizhuo, the fund manager of Xinghua Fund, also said that since the end of August, the real estate optimization policy has been constantly introduced, and the market's expectation of the recovery of the real estate industry's prosperity and the rebound of the economy in the third quarter has risen. The upward movement of risk appetite has suppressed the risk aversion, and the concentration of trading orders that accumulated a large amount of floating profits has led to the adjustment of the bond market. In addition, Wu Wen believes that the slight rise in capital interest rate due to the large issuance of government bonds and the accelerated pace of credit supply is also one of the reasons for the adjustment of the bond market.

Adjustment range or less than the end of 2022

The last round of negative feedback on the bond base occurred in November 2022, when the bond market was shocked, and the short-term pure debt fund index once staged a rare "eight consecutive declines", the cumulative withdrawal rate nearly wiped out the increase in the past three months, fixed income products were subject to collective shocks, and the news of the sharp decline in the net value of the bond base and bank financial products hit the hot search. Influenced by panic, some investors chose to actively adjust their positions, triggering "stampede adjustment".

The adjustment of the bond market since late August has triggered a dispute among investors about whether the above negative feedback trend will be repeated again.

It is worth noting that since this year, against the background of A-share market turbulence and equity fund issuance cold, bond base issuance has continued to be hot, creating many popular products. Data shows that since this year, a total of 774 public funds have been issued, with a total issuance scale of 683.737 billion yuan, of which 211 bond funds have a total issuance scale of 446.641 billion yuan, accounting for 65.32%. The issuance scale of 26 bond funds all exceeded 3 billion yuan, including 5 explosive products with issuance scale of 8 billion yuan.

This caused some investors to worry that a large amount of funds poured into the bond base. If there is a deep adjustment in the bond market, is it possible to trigger a more serious negative feedback wave than in November 2022?

The research of Sun Binbin's team of Tianfeng Securities (601162) believes that, from historical experience, the occurrence of negative feedback or reversal requires a strong macro signal and observation in combination with the behavior of market institutions. The negative feedback tide in 2022 is mainly based on three transmission mechanisms. First, investors do not fully understand the risk of product net worth after full netting; Second, structural asset shortage superimposes optimistic expectations of institutions, liquidity reserves are insufficient, duration mismatch, excessive leverage, variety sink, and product response is insufficient; Third, changes in macro policies exceeded common expectations, bringing interest rate risk.

By contrast, this round of adjustment is similar to the market in November 2022, that is, before the market adjustment, the main varieties fell to historical lows, the market leverage level was high, the institutions had the power to stop profits and cash in, and due to the rising policy expectations, the bond market faced short-term adjustment pressure. In addition, as September is the end of the quarter, the financial management "back statement" superimposes market fluctuations, and the market is worried about the impact of negative feedback and the spread of redemption behavior.

However, people in the industry generally believe that from the perspective of the macro environment and institutional behavior, there is a big difference from the last round of trends. Ping An Fund said that the difference between this round of redemption and the last one is that this collective redemption is caused by the financial institutions' liquidity expectation management in advance, rather than similar to the financial redemption led by the residential end at the end of 2022. Redemption has improved significantly when the margin of funds has been loosened and market parties expect the subsequent bond market to improve.

"It is understood that some financial institutions did sell bonds or redeem the bond base in advance to cope with potential redemption, but the actual redemption scale was not large, so they started to increase the allocation of bonds again, with less impact of redemption," Wu Wen said.

Lv Zhizhuo said that, by contrast, last November was in the fourth quarter of the year, the adjustment and optimization of some policies exceeded market expectations, and the concentrated large redemption of wealth management products caused the bond market interest rate to adjust beyond expectations; Since this year, financial institutions have optimized the product structure, the debt side has become more stable, and the market continues to loose monetary policy, and economic fundamentals are not expected to turn, so this bond market adjustment will be far less than last November.

The bond market will usher in the allocation time window

Industry insiders generally believe that this round of redemption pressure is less likely to further transmit to the debt side and strengthen into a negative feedback tide, which is difficult to trigger a greater redemption tide. Ping An Fund said that, in fact, with the marginal easing of inter-bank liquidity, this round of redemption has been significantly eased since September 11.

Wu Wen believes that from the perspective of the current bond market expectations, under the current process of economic recovery, interest rates do not have the basis for a sustained recovery, and in order to maintain the steady and healthy development of the real estate market, the subsequent central bank may further ease, the bond market will remain stable, and long-term interest rates are expected to have been adjusted to the upper limit of the range of shocks.

The deputy director of a fund investment told reporters: "The market was really worried about the negative feedback tide some time ago, but with the recent increase of the central bank's open market investment and the central bank's RRR reduction action, this problem probably won't occur." On September 15, the central bank cut the deposit reserve ratio of financial institutions by 0.25 percentage points, which is the second RRR reduction in the year. In the view of insiders, the second RRR reduction will help stabilize the capital and boost bond market sentiment.

After the redemption tide in November 2022, the market learning effect is obvious. In order to avoid liquidity risk of the bond base, institutions pay more attention to prior risk management, and make early response at the investment side and channel side. Ping An Fund said that both financial institutions and public funds will be more forward-looking in liquidity management, so the probability of stampede like last year is very small. On the investment side, we have made advanced risk management on the issue of avoiding liquidity risk in the bond base this time. In the case that there is an upward risk in the bond market, we have reduced the position in advance and replaced the position with assets with good liquidity. At the same time, the communication between the channel end and the customer is also relatively smooth, which timely pacifies the customer's mood without causing panic. Therefore, the product withdrawal range is relatively well controlled in the near future.

In terms of product structure, the mechanism is also generally optimized. Wu Wen believes that after the negative feedback trend last year, financial institutions have paid more attention to reducing volatility in product design and adopted more short-term investment strategies. Sun Binbin's team said that financial institutions improved their liquidity management ability by increasing deposit and debt base allocation. Lv Zhizhuo said that in the recent process of fund portfolio management, firstly, under the background of absolute low yield, the portfolio duration was appropriately shortened; Second, avoid allocating some highly volatile securities.

In terms of system design, we also need to take precautions. Wu Wen said that in terms of internal control system, the company has previously restricted the concentration of bond investment, credit rating, bond maturity and other factors in the investment system in combination with the risk return characteristics of products; Stress tests, including liquidity risk, duration risk and credit risk, are carried out regularly afterwards. At the investment level, it is very important to do a good job in liquidity management. When obtaining customer funds for purchase and investment allocation, it is necessary to assess the stability of liabilities and manage potential liquidity risks. Under the relatively sound internal control system and relatively stable investment style, the impact of short-term market fluctuations is normal. Ping An Fund said that in terms of system, it has continuously optimized risk control management, systematically and specially assigned personnel to track all kinds of public opinions in the market, and at the same time, it has strengthened the integration of credit rating risk control within the Group, shared resources, so as to further improve the risk control capability of products.

In the opinion of insiders, after the adjustment of the bond market, a better time window for allocation will be ushered in. Huaxia Fund said that it is difficult to avoid short-term adjustment pressure in the bond market, but emotional disturbance will bring more opportunities for allocation. In the volatile market, the short-term interest rate has limited relative adjustment space, so the experience of holding short-term debt products is better; After the adjustment, the market is expected to present more structural opportunities, and attention can be paid to the allocation opportunities of medium - and long-term debt products.

key word: Redemption pressure duration Net share value Bond fund Serial robbery