Core Viewpoint - The bond market at the beginning of 2026 is experiencing a "funding frenzy" due to the implementation of tax exemptions for foreign institutional bonds, the valuation advantages of Chinese bonds, and stable yields, leading to increased foreign investment and significant inflows from bank wealth management and individual investors into bond funds [1][6]. Summary by Sections Current Market Environment - The bond market in 2026 is characterized by "liquidity easing + interest rate fluctuations + credit bond yields dominating," with foreign capital and inflows reinforcing the importance of "certain returns" [6]. Types of Bond Funds - **Pure Bond Funds**: Focus on government bonds, financial bonds, and credit bonds without equity participation, characterized by low risk [4][5]. - **Level One Bond Funds**: Primarily bond-focused but can participate in new stock subscriptions, with moderate risk [4][5]. - **Level Two Bond Funds**: Have a bond base (≥80%) and can directly invest in stocks (up to 20%), presenting medium risk [4][5]. Fund Suitability Analysis - **Pure Bond Funds**: Considered the safest option, suitable for most investors due to their low volatility and stable returns, aligning with the current market's focus on yield [7]. - **Level One Bond Funds**: Face pressure on new stock subscription returns, making them less attractive compared to pure bond funds and level two bond funds in the current market [8]. - **Level Two Bond Funds**: Offer unique advantages in a volatile market, combining bond stability with potential stock gains, suitable for investors with moderate risk tolerance [9]. Selection Strategy for Bond Funds - The selection process for bond funds should match individual risk tolerance and market conditions, following a four-step approach: defining risk preference, examining product details, selecting fund managers, and configuring asset allocation [10]. - Recommended allocation strategy includes 60%-70% in core holdings (short-duration pure bond funds) and 30%-40% in enhancement strategies (level two bond funds) [10]. - Emphasis on selecting funds with high credit ratings (AA+ and above) and low fees (management + custody fees below 0.6%) to optimize returns [10].

Group 1 - The article discusses the recent recovery of A-shares and H-shares, with major broad-based indices steadily rising and some industry indices experiencing structural surges. Core indices like the CSI 300 and CSI 500 have returned to reasonable valuation ranges, while some aggressive indices have even entered a slightly high position [5] - As the number of investable equity products decreases, investors are seeking a "reasonable landing point" for new and future funds, leading to increased interest in bond funds as a lower volatility and lower drawdown investment tool [5] - The current yield on China's 10-year government bonds is 1.73%, which, despite a slight rebound from previous lows, remains at a historical low level [5] Group 2 - Bond funds are essentially tools that pool money to purchase bonds, which are contracts for borrowing money and receiving interest. Bonds can be categorized into three types: government bonds, policy financial bonds, and corporate bonds, with varying levels of risk and return [7] - The return of bond funds consists of two main components: coupon income from regular interest payments and capital gains from the appreciation of bond prices. The perceived stability of bond funds is contingent on market interest rates not fluctuating significantly [8][9] - Investors should be aware of potential risks within bond fund structures, such as high exposure to lower-rated corporate bonds or long-duration bonds, which can amplify sensitivity to interest rate changes and lead to unexpected volatility [9] Group 3 - The relationship between bond prices and bond fund returns is described as a seesaw effect, where rising interest rates lead to falling bond prices and vice versa. Long-duration bond funds are particularly sensitive to interest rate changes [10][11] - Currently, the 10-year government bond yield of 1.73% is significantly below the historical average and the central bank's long-term reasonable range of 2.5%-3.0%, indicating that bond prices are at historical highs and future returns may carry implicit risks [11][12] Group 4 - With the risk-free interest rate at historical lows, a mechanism is needed to adapt investment strategies. When the risk-free rate exceeds 3.0%, long-duration bond funds may offer better value; at 2.5%-3.0%, medium-duration bond funds are advisable; and below 2.0%, shorter-duration options should be considered to mitigate interest rate risk [13][14] - The selection of bond ETFs or off-market products should focus on duration, credit quality, and liquidity. Short-duration products are recommended in the current low-rate environment to reduce net value drawdown risks [15]