On December 20, a significant uptick in the bond market was observed, with the one-year government bond yield dipping below 1% during intraday trading, marking the lowest level since 2010. In addition, the yield on 30-year government bonds fell under 2%, while the 10-year government bond yield approached the critical threshold of 1.7% once againSuch movements sparked discussions among financial institutions and investors about the future trajectory of the bond market.

Experts and market professionals have been noting a clear uptrend in bond prices, attributing this to continued fund inflows from institutional investorsAs one market participant stated to Securities Times, "the rise in the bond market is evident, and even though there may be short-term fluctuations, the overall trend is still tilted downwards." This echoes a consensus among analysts who are observing how market dynamics unfold.

While the enthusiasm in the bond market has been strong, some analysts caution against the sustainability of the current trend

They suggest that despite the prevailing bullish sentiment, the risk of a pullback looms as yields have plummeted rapidlyThis indicates that with further investment in this upward movement, the risk-to-reward ratio may diminish, leading to concerns over intensified fluctuations in market performance.

Government Bond Yields Decline Again

In the past two months, the bond market has displayed robust momentum, with the 10-year bond yield breaking through significant benchmarks of 2%, 1.9%, and 1.8%. Other maturities also reflected varying degrees of declineA thorough review of this bullish trend reveals that macroeconomic fundamentals have played a crucial role as driving forces, significantly influenced by competitive behavior among major institutions seeking to enhance their bond holdings.

Analyzer Feng Lin from Dongfang Jincheng's research department pointed out that the shift in monetary policy reported in the recent meeting—which saw a 14-year transition from a "prudent" to a "moderately expansive" stance—substantially intensified market expectations for rate cuts and maintaining ample liquidity

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Coupled with the recently released economic indicators showing no substantial improvement, the bullish sentiment in the bond market remains strong as 10-year government bond yields continue to decline, repeatedly hitting new lows.

Feng further elaborated that "in short-end rates, the central bank's small-scale net injections in the open market have led to a relaxing of the liquidity situation since Thursday, which subsequently drove short-end bond yields down more than long-end rates." Notably, investor behavior has demonstrated remarkable adaptability, adjusting investment strategies in response to changing conditions, such as reducing deposit rates, thus significantly increasing allocations in bond funds, for instance, the Pengyang Zhongzhai 30-Year Government Bond ETF, whose total shares surged from 170 million in the second quarter to 360 million.

Starting from November, several bond funds have raised considerable amounts

For example, the Penghua Zhongzhai 0-3 Year Policy Financial Bond Index Fund collected nearly 7.99 billion RMB, while the Su Xinxin Shengli Rate Bond Fund attracted around 5.999 billion RMBThe phenomenon illustrates a shifting tide where investment capital is increasingly directed towards bond instruments.

On the longer-term market outlook, many professionals maintain an optimistic stanceAnalyst Tan Yiming from Minsheng Securities remarked that in light of policy intensification, it is essential to monitor the fundamentals and the recovery of credit conditions closely in the coming yearHowever, taking into consideration the likely extended timeline for substantial improvements due to economic realities and pending confirmations, he conjectured that the bond bull market logic remains difficult to reverse, with bond market rates expected to remain in a downward range determined mainly by the prevailing loose monetary policy and the forthcoming effects of governmental policies.

Tan predicts that by 2025, the rate cuts might reach 40 basis points, accompanied by a likely 100 basis points reduction in reserve requirements

He forecasts that the 10-year government bond yield will hover between 1.3% and 2.0%, primarily fluctuating around the median level of 1.70% throughout the year.

Cautious of Short-term Volatility Risks

Despite the prevailing optimism and exuberance within the market, many industry insiders have begun to highlight the risks of chasing high returns amidst notably stretched market conditionsRecent reports from Guohai Securities underscore that with the 10-year government bond yield nearing or dropping below 1.8%, funds have shown evident behavior toward taking profits, with net sell-offs totaling 19.2 billion RMB during the duration of December 9 to December 13.

Yongxing Securities have also posited that the confluence of anticipated U.S

Federal Reserve rate cuts and pre-year-end liquidity movements in China may amplify bullish sentiments within the bond marketThey project the possibility of the 10-year government bond yield trending downward beyond their current levels; however, elevated enthusiasm for leverage and extended durations could engender heightened risks of market volatility.

A bond market participant conveyed insights to the reporter, noting that with market emotions running high in the short term, price adjustments regarding future rate cuts and reserve requirement reductions have already been notably factored in, indicating that corrections may be on the horizonIf the timing or magnitude of policy implementations falls short of anticipations, the market could subject itself to severe oscillations.

In actuality, regulatory authorities have been vigilant in response to the rapidly declining government bond yields