"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 will still remain a very important foundational asset, and maintaining good bond investment practices 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, and sustainable returns for investors.

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

In the past, from a macro perspective, using fundamentals 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 success rate in predicting stage-specific market performance has declined.

Meanwhile, institutional behavior has become more influential in the bond market. Different institutions such as asset management firms, 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 various institutional behaviors 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.

Creating Value Through Trading, 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 success certainty are a form of asset comparison, aiming to build the optimal bond portfolio. In practical investing, we pay close attention to riding the yield curve. For example, if, in a stable yield environment, the convex point on the curve declines faster than other points after holding for the same period, then constructing a bond portfolio around 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, the sentiment in the secondary market can be amplified in the primary market, creating opportunities for small gains. When secondary market sentiment is weak, it’s suitable to bid in the primary market, with bid rates providing a safety margin, and winning bid rates are likely to be much higher than secondary market levels. Conversely, if secondary market sentiment improves, one should abandon primary market bidding but still consider primary coupon results as a reference for market sentiment.

Managing Risks and Protecting the Bottom Line of Bond Investments

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 in the investment portfolio—risks that may not materialize in the short term, with good net value performance, but could cause irreparable losses if they do. Examples include excessive credit downgrades or overly frequent tactical trading.

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

Overly deep credit downgrades might bring 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 tactical trading aims to profit at the expense of counterparties. Profit and loss are interconnected. I believe that in a predominantly institutional bond market, only a few geniuses can consistently win. I prefer to focus on solid research—identifying sector rotations, convex points on the yield curve, changes in credit spreads, linkage between primary and secondary markets, and precise, rapid credit bond pricing—to enhance product returns.

The Bond Market in 2026 Offers Opportunities—Pay Attention to the Rhythm

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

From a macro perspective, policy is shifting from “extraordinary counter-cyclical adjustments” back 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, with 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 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 are likely to decrease; new regulations on fund sales fees have been implemented; and demand for wealth management remains strong, with continued growth expected 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 good participation space in the overall bond market.

In summary, the 2026 bond market is characterized by “rising yields with a ceiling and downward movements anchored by policy rates,” making it advisable to actively seek allocation opportunities after yield adjustments.

(Source: Huaxia Fund)

Risk Reminder: Funds are subject to risks; investments should be made cautiously.