"Huaan Fixed Assets" Part Three | Wu Wenming - The Diligent Bee Seeking Certainty Opportunities

In a low-interest-rate environment, the protection provided by coupon assets to portfolio returns weakens, and the fundamental returns of bond assets decline. At the same time, increased volatility in the bond market presents challenges for bond investments. However, in a low-interest-rate environment, bonds remain a very important foundational asset, and maintaining good bond investments is still crucial. We will continue to adhere to a refined investment philosophy, seek out certain opportunities in the new normal, and strive to generate long-term, steady returns for investors.

Keeping Up with the Times and Continuously Improving the Bond Investment Framework

In the past, from a macro perspective, using fundamental and monetary policy analysis to adopt a top-down approach to bond investing had a high success rate. However, in recent years, with China’s economic restructuring, internal economic divergence has become more pronounced, and under the multi-target guidance of monetary policy, constraints on rate cuts and reserve requirement ratio reductions have increased significantly. While top-down macro analysis can grasp the overall trend, its predictive success for short-term market performance has decreased.

Meanwhile, institutional behavior has increasingly impacted the bond market. Different institutions such as asset management, funds, brokerages, banks, and insurance companies have varying liability logic, leading to significant differences in their preferences for bond assets. In a low-interest-rate environment, we need to study changes in institutional behavior more deeply and pay attention to market logic driven by capital flows.

Additionally, with the rise of AI tools in recent years, using large models to assess the effectiveness and feasibility of predicting bond trends has become more prominent. We must maintain an open mindset, leveraging AI assistance and subjective judgment to improve investment success rates.

Trading Creates Value, Never Giving Up on the Small Gains

Bond investing cannot be separated from bond trading. I personally come from a trading background and place great importance on value creation through trading. Our Chief Fixed Income Investment Officer, Zou Weina, often emphasizes that “doing bonds should be like diligent bees, never giving up on the small gains.” I believe that trades which create value are about finding certain, reliable opportunities.

On one hand, trades with higher certainty of success are a form of asset comparison, aiming to build the optimal bond portfolio. In practice, we pay close attention to riding the yield curve. For example, when bond yields are stable, the convex point on the curve tends to decline faster than other points over the same holding period, so constructing a bond portfolio at the convex point can achieve higher returns over the holding period.

On the other hand, trades with higher success certainty involve closely monitoring the market, discovering value gaps, and identifying mispricings. For instance, in the linkage between primary and secondary markets, market sentiment in the secondary market can be amplified in the primary market, creating trading opportunities. When secondary market sentiment is weak, it’s suitable to bid in the primary market, with bid rates providing a safety margin; the winning bid rate is likely to be much higher than the secondary market. Conversely, if secondary market sentiment improves, one should abandon primary market bids but still consider the primary coupon rate as a reference for market sentiment.

Effective Risk Management and Maintaining the Bottom Line of Bond Investment

I have always adhered to a simple principle: not earning money that shouldn’t be earned. What is money that shouldn’t be earned? I understand it mainly as taking on extreme risks that could, in the short term, not materialize or show good performance, but once realized, could cause irreparable losses. Examples include excessive credit downgrades or overly frequent trading.

High yields in bonds often come with high risks—there’s no free lunch in the world.

Overly deep credit downgrades may provide short-term coupon income, but if a risk event occurs, the loss could be the principal. Especially now, with overall bond coupon yields significantly reduced, the cost-effectiveness of excessive credit downgrades is declining. We need to closely monitor credit sentiment and guard against tail-end credit risks.

Additionally, frequent trading to profit from market swings is aimed at earning from counterparties. Profit and loss are interconnected. I believe that in a bond market dominated by institutions, only a few geniuses can consistently win. I prefer to focus on solid research, seeking to rotate among different bond types, identify convex points on the yield curve, observe changes in credit spreads, monitor linkage between primary and secondary markets, and accurately and quickly price credit bonds to enhance product returns.

Opportunities in the Bond Market in 2026: Pay Attention to Timing

Regarding the bond market in 2026, I believe the overall opportunities may be better than in 2025.

From a macro perspective, macro policies are shifting from “extraordinary counter-cyclical adjustments” to “counter-cyclical and cross-cyclical” measures, with economic performance expected to be more moderate. Meanwhile, the central bank’s monetary policy remains moderately accommodative, and there is a high probability of rate cuts and reserve requirement ratio reductions within the year. The likelihood of a significant surge in bond yields is low.

From an institutional perspective, in a low-interest-rate environment, the trend of retail deposits shifting from current accounts to asset management products continues, and bonds as a core asset still have high allocation demand. The debt pressures on various institutions are expected to improve compared to 2025—for example, banks’ △EVE compliance pressures may significantly decrease; new regulations on fund sales fees have been implemented; and demand for wealth management remains strong, with the scale expected to continue growing throughout the year.

From a valuation standpoint, at the start of 2025, the 10-year government bond yield was around 1.60%, with yields fluctuating upward throughout the year. At the beginning of 2026, yields are relatively high, leaving the bond market with good overall participation space.

In summary, the bond market in 2026 is expected to feature a pattern of “rising yields with a ceiling, anchored by policy rates during declines,” making it advisable to actively seek allocation opportunities after yield adjustments.