Since the policy shift on September 24, the bond market, which had been thriving for a considerable time, has undergone substantial adjustmentsInvestors, often referred to as "egg collectors," have experienced considerable anxiety amidst the back-and-forth dynamics of equities and bonds, alongside speculation over redemption waves and fluctuating expectations for economic stabilization measures.

However, recently, the bond market has shown signs of a slow recoveryAs November approaches its conclusion, long-term interest rates have experienced a strong downtrend, having fallen by 13 basis pointsFavorable factors on the "dark line" have outperformed the "bright line" pressuresBy late November, many bond funds had quietly regained their previous highsOn December 2, during early trading, the yield on 10-year government bonds fell below 2%, reaching its lowest point since April 2002.

With the end of the year approaching, will we see significant fluctuations in the bond market? As 2024 draws to a close, how should investors position themselves to seize bond market opportunities?

Bond market stabilization in the recent period has been triggered by a series of key events, such as the conclusion of the Federal Reserve's monetary policy meeting, a multitude of pivotal domestic conferences, and initiatives aimed at debt reduction

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These elements have collectively initiated a transformation in the bond market that had previously been under considerable pressure.

In November, the bond market experienced unexpected joys, with the yield on 10-year government bonds dropping from its peak of 2.03% on September 29, nearing the intra-day low of 2.0% recorded on September 24. The positive sentiment surrounding the bond market has been steadily warming.

This morning, the bond market opened strongly, with many government bond futures hitting historical highsA closer examination of the recent decline in government bond yields points to several primary factors influencing the trend.

Firstly, recent high-frequency data has shown brief improvements but indicates a tendency to revert to earlier conditions, underlining the challenge that the economy faces in escaping a "weaker-than-expected" reality, which necessitates a concerted effort from multiple parties.

Secondly, the release of the November fiscal plan, featuring a new quota of 6 trillion yuan, met expectations and primarily emphasized debt reduction policies.

Thirdly, the decrease in interest rates by the Federal Reserve by 25 basis points in November has provided additional leeway for domestic monetary policy

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Furthermore, concerns have heightened regarding the potential escalation in U.S.-China trade tensions and their implications for economic performance in the upcoming year.

On the evening of November 29, a nationwide pricing self-regulation mechanism for market interest rates was announced, proposing that the interest rates for non-bank interbank deposits be included in self-regulatory managementThis news has sparked a positive opening for the bond market in December.

Since mid to late October, the fluctuations in short-term sentiments related to the "stock-bond seesaw" have been diminishing, and the central narrative of bond market trading has returned to its fundamental and policy analysis frameworks.

A review of the bond market trends from 2019 onwards reveals that the yield on 10-year government bonds typically trends downward in December, with significant declines observed in 2019, 2021, and 2023, but occasional increases in November of specific years.

Notably, analyzing the yield changes from the first trading day in December indicates a clear reverse V-shaped pattern in yield changes over the following 40 days

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This suggests that in recent years, the bond market often exhibits a trading pattern characterized by "cross-year" dynamics.

While the driving factors behind these trends may vary, they generally arise from the impending end-of-year context where policy uncertainties are gradually resolvedMoreover, as year-end approaches, institutions tend to increase their allocations in preparation for new year strategies, occasionally leading to advanced allocations amidst a scarcity of assets.

What distinctions exist this year? Is a cross-year market rally anticipated? Presently, the bond market shares similarities with last year's trends where the interplay between December policy expectations and weak economic realities drives sentiment.

However, this year's notable difference lies in the heightened issuance pressures of government bonds, coupled with longer maturities, which has also become a recent focal point for market observers

The supply scale at the end of this year is the largest seen in recent years, averaging over 1.4 trillion yuan per month.

Industry analysts pointed out that following the rapid issuance of replacement bonds, the market had momentarily succumbed to concerns over supply, which had caused interest rates to rapidly riseNevertheless, debt reduction policies hinge on the limited capacity for credit expansion within the private sector; hence, the government's lead in reducing debt burdens aims to lower overall debt servicing pressure across society, inevitably leading to a decline in the central interest rate.

Indeed, as of mid-November, the overall results of local bond issuances proved favorableWith banks pre-arranging positions, complemented by subsequent adjustments from the central bank, the anticipated supply risks appear manageable, sustaining expectations for seasonal end-of-year market trends.

Moreover, due to the learning effects observed in the market, institutions widely speculate the potential for premature bond market rallies.

Recent analysis suggests that the current dynamic of a robust policy outlook contrasted with weak economic realities impacts the bond market sentiment similarly to 2023, potentially heralding an earlier launch of year-end trends and a general decrease in yields across various maturities.

Institutions maintain a bullish stance on the bond market this year

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Currently, evidence of shifts in property sales in smaller cities has not emerged, affirming the continuity of the bond bull marketDespite the 10-year government bond yield having reached historical lows at 2.03%, analysts assert that a significant bull market phase is expected.

Moreover, analysts have noted that in a competitive institutional environment, 10-year government bonds have experienced a record low closureThe forthcoming central economic work conference is projected to significantly impact the bond market, suggesting a prudent approach should await its conclusions before making definitive assessments.

How can investors grasp year-end allocation opportunities? The previous volatility in the bond market is reflective of the ongoing competition between future economic performance and policy adjustmentsAs December approaches, with supply pressures easing, the current bond market landscape appears more favorable, characterized by a temporary conclusion of adverse influences.

Even without seasonal implications, the context surrounding the bond market seems largely unchanged

Consequently, a mildly bullish perspective persistsFurthermore, with anticipated easing measures factored in for early next year, long-term interest rates are expected to decline further, reinforcing the prevailing downward direction for interest rates.

For those holding bond funds, their value for allocation remains significantWhen equity markets experience heightened volatility, the stability inherent in bond funds can effectively mitigate overall portfolio risksAdditionally, bond funds exhibit recovery capabilities in the event of retracements, smoothing short-term losses with interest incomes and enhancing total returns as the bond market rebounds.

From an asset allocation perspective, during times of increased uncertainty in the market, bond funds can maintain relative stability, thereby balancing the risk and return of the investment portfolio.

A meticulous examination of the objective allocation needs of market investors alongside various profound long-term factors reveals that the bond market continues to inhabit a conducive environment.

Thus, the investment potential of bond funds remains optimistic and warrants long-term holding