The financial landscape has been fraught with turbulence lately, leaving investors in a state of uneaseAs the stock market continues to oscillate, the bond market is also feeling the pressure, experiencing a significant pullback that has left many bond fund investors grappling with unexpected losses.

According to recent data from Choice, over 90% of bond-focused mutual funds have reported losses since September commencedSome funds have registered declines in net value exceeding 2.5%, a shocking figure for many investors who viewed these funds as relatively stable.

The downturn in bond fund performance is closely tied to adjustments in bond prices

Notably, the yield on 10-year Treasury bonds has increased noticeably, reaching highs of 2.69% at the end of last month before stabilizing around 2.66% in recent daysThis upward trend in yields has had cascading effects, leading to declines in returns from various bank financial products as well.

While many investors recall the substantial declines seen in bond funds last November, market analysts suggest that the current situation lacks a similar underlying rationale, indicating that bond funds may still hold potential value for medium- to long-term investors.

Investors have voiced their frustrations as market volatility pervades both the stock and bond arenas

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One investor, MrLiu, described how a short-duration bond fund incurred over 400 yuan in losses over just two days"I never expected bond funds could plummet this dramatically," he lamented, explaining that he redeemed his shares in a particular fund and plans to re-enter the market once conditions improve.

Similarly, MrZhang from Beijing, who had hoped to evade the stock market's volatility, found himself facing peril with his bond fund investments, stating, "My bond fund is threatening my principal." He echoed a sentiment shared by many investors who expected dependable performance from their bond holdings.

Evidence of these struggles is stark, as a Shanghai investor shared data showing that, as of September 12, only one day of that month yielded positive returns among his bond funds

This stark statistic illustrates the severity of the current situation.

On September 13, the yields on 10-year Treasury bonds had risen to 2.66%, marking a significant increase since late AugustThe inverse relationship between market interest rates and bond prices means that this yield increase has been detrimental for most bond funds, evidenced by the fact that out of 5,465 bond funds tracked in September, a staggering 4,962 reported losses — a staggering 90.8%. The maximum decline in individual bond funds surpassed 2.5%, with several experiencing declines greater than their gains from the earlier months of this year.

Breaking down the types of bond funds affected, 2,569 short- and medium-term bond funds reported negative returns, alongside 752 short-duration and 1,294 mixed-bond funds

Notably, 279 pure medium- to long-term bond funds saw net declines exceeding 0.5%, including 53 mixed-bond funds which also fell by over 1% in the same timeframe.

The most significant declines were observed in mixed-bond funds, which often incorporate a blend of equities and convertible bondsFor instance, the Guotai Junan Enhanced Bond Fund, which saw a substantial decline, had a remarkable stock allocation of 18.75% and a bond weighting of 74.08% by the quarter's endAnother example is the Qianhai Open Source Dingyu Bond Fund, which faced over 2% declines, attributed partly to its high allocation of convertible bonds (79.5%) and a modest 4.1% in stocks.

As both the stock and bond markets experience concurrent adjustments, several mixed-bond funds, including Dongfanghong Enhanced Bond A/C and Penghua Convertible Bond A/C, have seen their net values decrease beyond their previous increases over the prior eight months.

Moreover, numerous medium- to long-term pure bond funds have also fallen victim to this downward trend in the bond market

For instance, the Guangfa Huanan 18-Month Open-Ended Bond Fund has experienced declines greater than 1.2%, paralleling losses in several other comparable funds.

Reflecting on past scenarios, one might be reminded of the substantial corrections faced by bond funds in November 2022, largely driven by earlier dramatic gains and substantial redemptions from bank financial productsBut the inquiry remains — what has instigated this new wave of turbulence within the bond market?

MrHe Jinlong, General Manager of Youmeili Investment, provided insight, attributing recent bond fund adjustments to several factors: this year has seen a bull market in bonds, and following an interest rate cut in mid-August, the sentiment has gradually heated and then faced pressures which caused temporary adjustments; the LPR (Loan Prime Rate) was not cut at the end of August, which may have created a lack of positive momentum for the bond market, while rising overnight borrowing rates reflected a slight tightening of liquidity in comparison to previous conditions; along with the "comprehensive debt solution policy," the increase in local government bond issuance at the end of August hints at continued expansions in future.

Independent financial commentator Guo Shiliang noted that the recent downturn in the bond market could relate to heightened expectations around monetary policy tightening alongside concerns regarding localized credit risks

Nevertheless, he emphasized that the bond market is expected to stabilize once the prevailing emotional volatility normalizes.

Despite the prevailing metrics, MrHe Jinlong expressed confidence that the potential for a disaster similar to last November's debacle is slim"Current conditions differ significantly from those of past occurrences as credit performance remains stable amidst substantial interest rate fluctuations," he assertedThe policy is still supportive, and with demands for economic growth measures in place, liquidity should not face contraction in the foreseeable futureThus, medium- to long-term bond funds may continue to be attractive for investors seeking stability amid economic uncertainty.

Partner at Caidao Wealth Management, Rong Hao, concurred, asserting that the causes for last November's dramatic market downturn were mainly due to liquidity risks stemming from mass redemptions of financial products, leading to substantial forced sales of bonds at discounted prices