The bond market has showcased impressive resilience and significant upward momentum throughout the year, culminating in a remarkable performance in recent weeksAs of December 13, over 3,400 bond funds, often referred to as “bond funds” in financial vernacular, have reported record-high net asset valuesThe returns from these funds have been notably robust, with more than a thousand of them achieving yields exceeding 5% since the start of the year.

This uptrend correlates strongly with recent movements in government bond yieldsIn December, the yield on a benchmark 10-year government bond fell sharply, dipping below the crucial 2% threshold for the first time on December 2 and continuing to hit new lows subsequentlyThis rapid decline has contributed to a significant rally in the pure bond fund index, which has seen a consecutive rise over seven weeks, accelerating further with a weekly increase of 0.29%—the largest single-week jump observed recently.

In the past week, products across the board in the bond fund category have generally posted gains

This comes in the context of a contrasting performance in equity markets, which have showed relative weaknessAccording to data, nearly 3,700 bond funds recorded value increases in the last week, translating to an impressive 99% of the category participating in this upward trendSome standout performers have significantly outpaced the average, with over 300 bond funds seeing their net asset values rise by more than 1% in just the last weekNotably, Dezhong Ruiyu Rate Bond A led the pack with a 3.3% surge, while other funds like Pengyang China Bond 30-Year Treasury ETF and Bosera Shanghai Composite 30-Year Treasury ETF also saw their values soar by over 2.5%.

The groundwork for such stability is established by the fact that economic stimulus remains firmly underpinned by an accommodative monetary policy, which suggests that interest rates are likely to continue trending downwardsThis environment boils down to the consistent appeal of 30-year government bonds as beneficiaries of a broader liquidity expansion

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After experiencing major corrections that eased price pressures, these bonds have managed to catch the fancy of investors once again, kindling a recovery in market sentiments.

Looking ahead, the bond market has entered a new phase of growth following a steep decline at the end of SeptemberThe pure bond fund index has shown consistent gains—a collective increase of 1.24% since October, with more pronounced growth rates in recent weeks of 0.20%, 0.27%, and 0.29%, respectivelyThis performance has set new highs for many bond products, with over 3,400 funds hitting all-time net asset value records by December 13.

Evaluating their performance on a year-to-date basis reveals some funds achieving remarkable returns, with more than 1,000 reporting yields over 5%. High-performing entities like Everbright Medium and High-Grade A, ICBC Ruiying, and Pengyang China Bond 30-Year Treasury ETF have even exceeded 20% in returns.

Interestingly, several bond funds have diversified their portfolios to include convertible bonds and equities

Notably, Everbright Medium and High-Grade A mentioned in their third-quarter report that they are opting for high-quality convertible bonds with attractive valuations, aiming to capitalize on potential rebounds in equity markets during a recovery phaseTheir selection criteria encompass various factors such as the premium on conversion, the valuation of underlying stocks, and the pricing of the convertible bonds themselves.

Moreover, ICBC Ruiying's strategy involves a balance of equities and convertible bonds in its portfolio, with a significant holding in Oriental Fortune—which has surged by over 30% since OctoberTheir convertible bond holdings, such as the Chongqing Heavy Silver Convertible Bond and Shanlu Convertible Bond, have also shown impressive gains of more than 7%. Such strategic positioning speaks volumes about their adaptability in navigating the fluctuating market landscape.

Looking at the broader picture, there is potential for a prolonged bull market in bonds

Recent meetings have emphasized the need for a more proactive fiscal policy coupled with a moderately accommodative monetary stanceThis transition in monetary policy comes after a 14-year hiatus, signaling a paradigm shift.

Analysts from Xinda Securities contend that given the anticipated changes in monetary policy operations, the 1.8% yield on the 10-year government bond may not mark the peak of the current bull marketThere remain opportunities for further declines in rates, implying that investors should maintain a positive outlookHowever, they advise caution, as yields on three-year bonds have capped out, suggesting that 4-6 year bonds may become more attractive if capital prices drop furtherMoreover, with the yield spread on the 30-year bonds showing some widening before the upcoming Central Economic Work Conference, there could be further opportunities for appreciation.

In conclusion, bond investors could be in a prime position to benefit from anticipated shifts in monetary policy