Morgan Stanley Investment Funds released a statement saying that since the press conference on September 24, the A-share market has rebounded strongly, but the bond market has experienced a significant adjustment characterized by "interest rates first, then credit." The bond market's recent pullback was largely influenced by expectations of stable growth policies, improved risk appetite driven by the A-share market, and other factors. On one hand, recent policies in currency, stock, and real estate markets have been introduced intensively and beyond market expectations, leading to increased anticipation for subsequent fiscal policies and the beginning of fiscal stimulus trading. On the other hand, the stock market sentiment has continued to rise, with foreign capital turning positive and funds rushing into the market. Under the "stock-bond seesaw" effect, some funds have flowed out of the bond market to take profits, and redemption pressure from wealth management has led to increased bond market volatility.
Looking ahead, in the medium to long term, the recent Politburo meeting clearly stated "to increase the counter-cyclical adjustment strength of fiscal and monetary policies, to lower the reserve requirement ratio, and to implement a strong interest rate cut," indicating that a loose monetary policy remains the overall trend. Policy interest rates are likely to remain low, and even if future fiscal policies are implemented, it will take time from policy implementation to actual work volume. In the early stages of policy, there is no need to be overly pessimistic about the bond market. The market adjustment period may be a good opportunity for moderate layout.
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Can bond funds still be held?
Although the returns of pure bond funds are lower than those of equity and mixed funds during a bull stock market, they are superior in relatively stable returns. Their risks are generally lower than those of equity and mixed funds, making them suitable for investors who value long-term holding experience. Wind data shows that in terms of long-term returns, both the ordinary pure bond fund index and the fixed-opening pure bond fund index have recorded positive returns every year in the past 10 years, with average annualized returns of 3.53% and 4.66%, respectively, with the fixed-opening pure bond fund index slightly outperforming.
In bond investment, fixed coupon income is one of its important sources of return. Thanks to the protection of coupons, although the bond market has also experienced several bull and bear cycles in the past 10 years, it generally shows the characteristics of "long bull, short bear," and can repair drawdowns relatively quickly most of the time. Historical data shows that even in the face of large-scale adjustments, the maximum drawdown repair time of the Wind short-term pure bond fund index does not exceed 85 days, and the latest large pullback at the end of 2022 was successfully repaired in just 13 days. The repair time for those small bumps and pullbacks in these 10 years is even shorter.
In addition, from the perspective of large asset allocation, bond assets have low correlation with other assets. Therefore, by allocating pure bond funds, it is also possible to achieve risk diversification of investment portfolios. In the market with large fluctuations and large differentiation, for investors with relatively high risk appetite, pure bond funds are also expected to play the role of "stabilizer" in portfolio allocation. This role requires investors to experience with "time" and "patience."
In summary, as an important part of asset allocation, pure bond funds show their indispensable value both in providing stability during market fluctuations and in striving for asset appreciation in long-term investment.