In recent times, the bond market has experienced a notable surge, attracting various low-risk preference funds that are using mutual funds as gateways to position themselves within this lucrative spaceThe demand for short-term bond funds in particular has seen a dramatic rise due to their favorable liquidity and low volatility.

According to Wind data, as of March 5, there were a total of 337 short-duration bond funds available in the market, boasting a combined scale of 10,067.28 billion yuan, which has now crossed the significant milestone of one trillion yuanNotably, 17 of these short bond funds have surpassed the scale of 10 billion yuan.

The “steady water flow” characteristic of returns is a significant reason behind the popularity of short bond assets among investorsFor instance, the China Bond Composite Wealth Index (CBA00211.CS), which represents short bonds, has recorded positive earnings every complete historical fiscal year over the past decade, averaging an annualized return of 3.4% with a mere 0.26% annualized volatility.

Short bond funds have now surpassed one trillion in scale.

"Recently, short bond funds have seen rapid growth both on e-commerce platforms and through various channels," several market insiders from different fund companies reported to the Securities Times·Brokerage ChinaThis trend showcases the ongoing confidence in short-duration investments.

Since the beginning of 2024, the bull market in bonds has continued from the previous year

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While long-term bonds have shown remarkable performance, short bond funds have managed to carve out their own space, thanks to their combination of low risk and better liquidityWind data indicates that the China Citic Short Bond Fund Index has gained 0.72% year-to-date, with an annualized increase of 3.25%. In comparison, the average increase of short bond funds has been around 3.51%, with 326 of the 337 short bond funds returning positive yields; some even exceeding 5%.

In the context of regulatory reforms breaking the rigid guarantee of returns, coupled with increased volatility in equity markets, short bond funds have emerged as a go-to investment vehicle for investors looking to allocate spare cashWind data reveals that as of March 5, in terms of "short-term pure bond funds", the overall scale of all short bond funds has grown by over 60% compared to one year ago, reaching 10,067.28 billion yuan.

Examining the specifics, among the 337 short bond funds, 17 products have exceeded a scale of 10 billion yuanFor instance, Changxin 30-Day Rolling Fund stands at 30.38 billion yuanAdditionally, both Changcheng Short Bond and Jiashi Ultra-Short Bond have scaled over 20 billion yuan, with other funds like Jianxin Short Bond, Jiashi Huixin Intermediate and Short Bond, and Caitong Anrui Short Bond also surpassing that 10 billion threshold.

Particularly noteworthy is the growth last year, where short bond funds saw an increase of over 300 billion units in their share count, making them second only to passive index funds among non-money market fund typesThe Changxin 30-Day Rolling Bond Fund led the way with an influx of 19.75 billion units, while Jiashi Huixin Intermediate and Short Bond Fund followed closely with 12.879 billion units added, alongside multiple other funds that added upwards of 7 billion units.

In terms of fund companies, last year witnessed Jiashi Fund and Changxin Fund each adding over 30 billion units to their short bond fund shares

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Following them, funds from Zheshang and Guotai also recorded additions exceeding 15 billion units in their respective short bond fund categories.

Wang Yuening, a senior analyst at Morningstar (China) Fund Research Center, commented that amidst declining interest rates, yields on money market funds are consistently decreasing, making short bond funds attractive due to their minimal volatility and high liquidity while still providing returns above those of money market fundsThis appeal resonates particularly well with risk-averse investors.

Over a hundred short bond funds have implemented purchase limits.

With substantial capital inflow, numerous short bond funds have recently tightened their subscription limits to manage size.

On March 5, Yifengdai Fund announced a suspension of large subscriptions for their A, C, and D class shares for institutional clients across all sales channels, additionally capping single-day subscriptions to 1.5 million yuan inclusive.

Debang Fund also recently announced that to protect the interests of fund shareholders, starting March 4, 2024, it will set limits for large purchases and conversions of its class C shares to 1 million yuan at specific securities firms.

Wind statistics indicate that as of March 5, among the total of 337 short bond funds across the market, 18 have completely suspended subscriptions, while 105 have paused large subscriptions, with limits ranging between 10,000 yuan to 500 million yuan.

These short bond funds that have suspended large subscriptions have generated commendable performances over the past year

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The Chang’an Hongfeng Short Bond Fund, managed by Yang Yan, halted subscriptions for amounts over 10,000 yuan as of January 18, with a year-to-date return of 5.7%. Similarly, the Changcheng Short Bond Fund managed by Zou Deli suspended large subscriptions for class D shares exceeding 50,000 yuan starting February 26, yielding a return of 5.53% within the last year, with total assets reaching 23 billion yuan by the end of last year.

Potential for increased volatility in the bond market.

After two years of robust growth, one may wonder whether the bond market can maintain its bullish momentum, and whether short-term bonds still provide a value proposition.

Li Huaiding, the appointed fund manager of the Everbright Dingli 90-Day Rolling Bond Fund, mentioned that the dynamics in the bond market remain strong and, considering the current policy direction and significant economic data, this year still holds promise for bonds.

“In the mid-term perspective, although the current yield on 10-year government bonds has dropped to about 2.4%, we believe certain medium to long-term factors may further drive down bond yieldsFor instance, in light of the necessity to lower interest rates, while current lending rates need adjustment, a key constraint is the persistently high levels of deposit costsAccording to third-quarter data from listed banks, the cost of interest-bearing liabilities remains high at 2.0%, causing net interest margins to hover around 1.7%. We believe that, as long as corporate performance remains stable, there is room for further reduction in both LPR and deposit rates,” Li Huaiding stated.

Looking ahead to the bond market in 2024, Tao Guofeng, a fixed-income fund manager at Xingyin Fund, believes it is likely to remain strong

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