Regarding the performance of the bond market in the later period, Chen Yanyi, fund manager of the fixed income investment department of Morgan Stanley Fund, believes that looking ahead to the third and fourth quarters, in order to achieve the annual economic growth target, macro policies need to continue to exert force, and the necessity of stronger fiscal support is higher. The continuous decline in government bond yields may have signaled the need for more bond issuance to support economic growth. Although the current bond market volatility is more affected by policy factors, market sentiment has cooled in the short term, trading difficulties have increased, and some financial institutions have chosen to temporarily wait to avoid regulatory risks. However, in the medium to long term, the bond market will ultimately return to fundamentals, and the market adjustment period may be an opportunity for moderate allocation. What happened in the recent bond market shift from sunny to cloudy? The bond market has been hot this year. Against the backdrop of the continuous reduction of domestic deposit rates and the "asset shortage," fixed-income wealth management products have attracted a large amount of funds from residents for subscription, leading to a continuous expansion of the scale of wealth management products and further pushing interest rates down. Due to the rapid decline in long-term bond yields, a certain degree of pro-cyclical risks have also been accumulated. Recently, the central bank has repeatedly warned of the risks in long-term interest rates, explicitly pointing out that the current low long-term bond yields do not match the actual economic fundamentals. In early July, the central bank strengthened its control over long-term government bond yields by borrowing national bonds and selling them in the secondary market, while also temporarily exempting MLF collateral, which increased the supply of medium and long-term bonds available in the market. These measures help alleviate the supply and demand pressure in the bond market and correct the long bond yields. In early August, the Securities Association cracked down on some small and medium-sized financial institutions for violations such as lending accounts and interest transmission in government bond transactions, and instructed several major banks to net sell long-term government bonds. In this context, from August 2 to August 15, the yield curve of government bonds showed an overall upward trend. The yield of 1-year government bonds increased by 13.10 basis points, the yield of 7-year government bonds increased by 14.83 basis points, the yield of 10-year government bonds increased by 7.73 basis points, and the yield of 30-year government bonds increased by 4.35 basis points, reaching 1.52%, 2.11%, 2.21%, and 2.39%, respectively, highlighting the market's high sensitivity to regulatory policy changes. Official interventions may drive a temporary rise in long-term bond yields. However, due to the inverse change in bond prices and yields, the bond market is likely to experience a decline at this time. Source: Wind; Statistical period: 2024/1/2-2024/8/16 However, in the long term, Morgan Stanley Fund believes that the central bank's intention is not to significantly raise interest rates. The overall trend of the bond market has not fundamentally reversed, and to boost the economic fundamentals, loose monetary policy is likely to continue. In the context of the asset shortage, the bond market's friendly environment has not changed, which may be the basis for the bond market to continue its bullish trend. The short-term fluctuations in the bond market do not affect its long-term upward trend. Looking back at history, taking the WIND Long-term Pure Bond Fund Index (885008) over the past three years as an example, even if bought at a temporary high point, as long as given time and patience, the investment eventually fills the gap successfully and continues to set new highs. Source: Wind Target Index: WIND Long-term Pure Bond Fund Index (885008)