The Chinese bond market has recently experienced a noticeable adjustment, particularly seen in the yield of the 10-year government bonds. After reaching a low of 1.60% on January 6, 2023, the yield rose to 1.66% on January 13, marking an increase of 6.3 basis points. As per the data from the China Monetary Network, the yield on the 10-year bonds settled at 1.64% on January 16. This upward movement in yields comes amidst the People's Bank of China (PBOC) deciding to temporarily suspend the purchase of government bonds in the open market. As a result, the revenue from fixed-income financial products, which primarily focus on bonds, has seen a downturn.

Analysts predict that financial management companies may need to recalibrate their asset mixes, increasing their investments in equities to enhance overall product yields in response to the changing landscape. When bond yields rise, the interest income from newly acquired bonds diminishes, which directly affects the profitability of fixed-income wealth management products.

Data from the industry indicated that in the week of January 6 to January 12, the average annualized yield of open-ended fixed income wealth management products (excluding cash management) plunged by 0.67 percentage points to 3.36%. Furthermore, the overall yield trend in the same timeframe reflected a continued decline, marking a 0.68 percentage point drop cumulatively over a similar duration. Even the three-month yield average dipped slightly by 0.03 percentage points to 3.55%. Liu Sijia, a researcher from Puyin Standard, remarked that the adjustments in the bond market might exacerbate yield fluctuations in fixed-income products in the short term.

From a liquidity perspective, the central bank's decision to halt government bond purchases sends a strong signal to the market to curb fears of excessively rapid declines in interest rates. This decision has introduced upward pressure on short-term government bond yields and has impaired longer-dated securities. According to Wen Bin, the chief economist at Minsheng Bank, the cessation of bond purchases will inherently reduce market demand for bonds—especially short-term ones. Coupled with anticipated market movements, this could lead to short-term government bond yields rapidly aligning closer to benchmark funding rates.

Moreover, the lack of clear indications from the central bank regarding potential bond sales contributes to uncertainty. If the PBOC opts for long-term bond sales in the future, it might set off a bearish wave across the bond market, reflecting a discernible reversal of the overly loose monetary policy that had been previously priced in.

From the perspective of market analysts like Liang Si from the Bank of China Research Institute, the PBOC's choice to pause bond outreach could bring about multifaceted implications, particularly regarding changes in bond allocation ratios. A portion of fixed-income wealth management products may consider readjusting their bond allocations. Furthermore, there will likely be shifts in the risk characteristics of these products. If government bond yields begin to rise, the net asset value of fixed-income wealth management could also oscillate. While these adjustments may have an impact on fixed income products, a robust analysis considering market trends and asset allocations is essential.

According to Bai Wenxi, vice-chairman of the China Enterprise Capital Alliance, the anticipation of lowered interest rates had already been somewhat factored into the bond yields. This expectation culminated in the observable downward trend of fixed-income wealth management products. The average expected yield for these products in 2024 is lower compared to 2023, with constrained opportunities for stable income as interest rates hover at lower levels. An uptick in trading activities may likewise elevate market volatility, complicating investment decisions.

Liang Si further emphasized that government bonds, as vital assets in fixed-income management, entail considerable demand. Should there be notable fluctuations in bond prices or yields, this could directly sway the performance of wealth management products that are linked to government bonds. Any adjustments to risk levels would need to align with the product's asset allocation structure and the prevailing dynamics of the financial markets.

From a long-term perspective, under the overarching theme of "moderate easing" in monetary policy, the PBOC appears inclined to deploy tools such as reverse repos proactively. This approach aims to maintain ample liquidity while also preserving some upward potential in the bond market. Liu Sijia highlighted that despite rising bond yields posing challenges, the diversified investment approach within fixed-income wealth management—including allocations to money market instruments, non-standardized assets, and equities—allows for more controlled impacts of bond yield increases on product earnings.

As discussions around investment strategies continue, the "fixed-income plus" approach has garnered renewed attention. Recently during a press briefing, the PBOC reinforced its commitment to enhancing countercyclical adjustments in macroeconomic policies, intending to calibrate policy diligence based on the shifts in both domestic and global economic and financial landscapes to ensure adequate liquidity is maintained.

Amidst this backdrop, Liang Si shared that newly established fixed-income wealth management products are likely to encompass diverse considerations, including product specifics, the operating dynamics of financial markets, and investor preferences. The suspension of government bond purchases could influence both bond supply and yields; however, asset managers will adapt the new product configurations adequately based on the evolving market conditions.

Bai Wenxi anticipates that these newly created fixed-income products might integrate more "fixed-income plus" strategies—boosting allocations towards equity-like assets such as convertible bonds, REITs, gold, and passive ETFs. Given the constraints related to product durations, the focus of these products will likely remain on medium to short-duration credit debts, with strategies to extend and diversify durations to optimize returns.

As the bond market faces adjustments, Liu Sijia recommends that investors with lower risk appetites consider gravitating toward stable, low-volatility fixed-income investments. These types of products can leverage strategies like maturity matching and holding until expiry to secure predictable yields, thereby mitigating exposure to fluctuations in bond yield rates. Furthermore, the Ministry of Finance's reiteration of a proactive fiscal direction should signal optimism for 2025, emphasizing the implementation of moderately easing monetary policies alongside measures to expand domestic demand. This development hints at altered opportunities for investment in equity markets. For investors with higher risk tolerances, blending fixed-income products with equity allocations may optimally capitalize on market trends, providing both income stability and enhanced product yield flexibility through diversified investments.