China’s bond exchange-traded fund (ETF) market has reached a historic milestone, with total assets under management exceeding 300 billion yuan ($41.3 billion) for the first time as of June 6. The fixed-income ETFs are becoming investors’ preferred choice for stable allocation in turbulent markets, benefiting from gradually declining interest rates.
Market leaders demonstrate strong performance
Industry data reveals several bond ETFs have delivered impressive returns over the past year. The Bosera SSE 30-year Treasury Bond ETF and Pengyang ChinaBond 30-year Treasury Bond ETF led the pack with gains of 14.52% and 14.40% respectively. Other notable performers including Bosera CSI Convertible Bond ETF, HFT SSE 10-year Local Government Bond ETF, and Guotai SSE 10-year Treasury Bond ETF all achieved returns exceeding 6%.
The market shows clear stratification among products, with four ETFs attracting over 10 billion yuan in net inflows each during the past year. The Fullgoal ChinaBond 7-10 Year Policy Financial Bond ETF led with 32.95 billion yuan in new assets, followed by Bosera CSI Convertible Bond ETF (24.22 billion yuan), Pengyang ChinaBond 30-year Treasury Bond ETF (16.13 billion yuan), and HFT CSI Short-term Financing Bill ETF (15.03 billion yuan).
May saw the overall bond ETF market grow by more than 40 billion yuan, reaching 304.3 billion yuan by June 6. The HFT CSI Short-term Financing Bill ETF currently ranks as the largest product with 48.9 billion yuan in assets, followed closely by Fullgoal ChinaBond 7-10 Year Policy Financial Bond ETF (48.1 billion yuan) and Bosera CSI Convertible Bond ETF (34.0 billion yuan).
Structural advantages drive adoption
Market participants highlight several key advantages driving bond ETF adoption:
Enhanced liquidity: Unlike traditional bond funds requiring T+1 settlement, ETFs enable real-time secondary market trading
Cost efficiency: Lower management fees and absence of subscription/redemption charges reduce long-term holding costs
Transparency: Daily NAV updates and portfolio disclosures provide visibility for strategic trading
Diversification: Product variety spans ultra-long treasuries, policy financial bonds, local government debt, and convertible bonds
“The current rate environment favors bond ETFs,” noted a senior executive at a Shanghai-based asset manager. “While long-dated treasuries and policy financial bonds offer stability, convertible bond ETFs provide equity-linked upside that appeals to investors during market corrections.”
Institutional landscape evolves
Sixteen fund companies have now entered the bond ETF space, with HFT Fund Management leading at 86.5 billion yuan in assets under management through its short-term financing and municipal bond ETFs. Bosera Funds and Fullgoal Fund follow with 53.1 billion yuan and 48.1 billion yuan respectively.
The market shows increasing concentration among top players, though smaller firms are pursuing niche strategies. “Differentiation through specialized products allows mid-sized managers to compete in the declining rate environment,” observed a fund analyst.
Defensive appeal strengthens
ChinaAMC analysts suggest the recent market adjustment has enhanced bonds’ defensive characteristics, with coupon payments providing downside protection. “Even when capital gains diminish, the coupon cushion helps prevent permanent loss of principal,” they noted.
While volatility may persist due to policy uncertainties and institutional positioning, several positive factors emerge:
Foreign investors increased holdings of Chinese bonds by $10.9 billion in April – the highest monthly inflow this year
Potential reallocation from U.S. treasuries following Moody’s downgrade could push foreign ownership of Chinese government bonds above 12%
Credit strategies focusing on economically strong regions and selective quality issuers in weaker areas show promise
Dacheng Fund manager Chen Ji cautions that near-term challenges remain: “The primary headwinds come from liquidity conditions and anticipated increases in government bond supply. We expect higher rate volatility, selective credit opportunities, and stronger foreign demand to characterize the next phase.”
As China’s fixed-income market matures, bond ETFs appear positioned for continued growth, combining structural advantages with favorable macroeconomic conditions to meet diverse investor needs.
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