Fixed-Income Monthly Market Snapshot - Apr 2024
April 07, 2024|

Liang Ying

At the end of Q1 2024, driven by the ongoing marginal recovery of the equity market and increasing expectation for fiscal loosening, the bond market ended its rapid yield fall that started at the beginning of the year and returned to sideways drift. Looking ahead to Q2, despite the continuing expectation for monetary easing, plummeting returns are improbable in the present money market given the central bank’s overarching policies to prevent capital from circulating solely in the financial sector rather than entering the real economy. Additionally, more government bonds will be issued in Q2, which may temporarily disrupt the funding landscape of the bond market. Looking at the fundamentals, except for the real estate sector, all indicators point to a marginal improvement of China’s economy. Overall, given the notably low performance-to-price ratio, the bond market’s heightened sensitivity to negative news may amplify its volatility to some extent.


Ji Lingyun

Economic growth remains under pressure amid ongoing structural transformations. However, Q1 enjoyed better-than-expected economic growth thanks to improved exports and consumption. This has reduced the probability of monetary easing, introducing uncertainties to the downward yield since last year. Given the limited upward potential of the demand side, any uptick in yield will be modest. Looking forward, we believe that bond yields are likely to go up slightly while fluctuating within a narrow band. In the current market, we prefer to invest in credit bonds with an appreciable rate spread to achieve relatively stable, static yield. Moving ahead, while maintaining a mostly risk-neutral portfolio, we will keep an eye on the changes in fundamentals and liquidity, re-extending durations at the opportune moment when the interest rate generally moves downward.


Liu Wanshu

The recently published Q1 economic data show signs of improvement, which may lead to quicker pace of government bond issuance in Q2. With falling interest rate in Q1, low bond yields and valuation, and large trading positions may increase bond market’s volatility in the coming months. The bond market is still supported by economic fundamentals and policies, and Q1 was still within the monetary easing cycle. However, the policy rate cut fell short of market expectations. As a result, the interest rate in short-term bonds fell only slightly amid an overall interest rate downtrend, resulting in exceedingly flat yield curves. More monetary policies to lower interest rates and the reserve requirement may be introduced within the year, making short-term assets more appealing—and at a better safety margin—compared with long-term ones.