Stock market volatility causes "Fixed Income+" to retreat; institutions remind investors not to blindly redeem due to short-term fluctuations.

21st Century Business Herald reporter Yi Yan-jun

Recently, several mid- to long-term pure bond fund products have, due to large redemptions, successively increased the precision of their net asset values per share in order to avoid damage to investors’ interests caused by calculation errors.

This phenomenon also reflects that some debt funds with a relatively high proportion of institutional investors may face a certain level of outflow pressure.

Meanwhile, volatility in the equity market has put “fixed-income+” funds through a performance stress test, and market concerns about the possibility of concentrated redemptions have been heating up. Interviewees told this reporter from 21st Century Business Herald that, in the short term, market fluctuations have intensified; “fixed-income+” funds may experience some turbulence, but the logic for long-term allocation remains unchanged.

As far as the bond market is concerned, some institutions have pointed out that “fixed-income+” capital has become an important marginal variable for observing the current bond market. In the short term, the bond market is unlikely to break out of a clearly defined trend rally; it is expected to remain dominated by a range-bound, sideways pattern.

Behind large redemptions

On March 28, Tianhong Fund Company announced that Tianhong Xinli 2026 March 27 experienced a large redemption. To ensure that the interests of fund holders are not adversely affected by the precision retained to the decimal places of the fund’s net value per share, after consulting and reaching an agreement with the custodian, the company decided, starting March 27, 2026, to increase the net value precision of Tianhong Xinli to eight digits after the decimal point; the 9th digit after the decimal point will be rounded.

Tianhong Fund stated that the above fund will restore the net value precision agreed in the fund contract once the large redemption no longer has a significant impact on fund shareholders’ interests, and at that time, there will be no further separate announcement.

Previously, during March 19 to March 26, Cangjia Youxiang C shares, Jintuo Juyi, Jintuo Asset Management Rui Feng A/C shares, and Fengchao Fenghe and A/C shares successively increased their net value precision. Among them, except for Jintuo Asset Management, other fund companies mentioned in their relevant announcements that the aforementioned fund products experienced large redemptions.

By fund type, the above five products are all mid- to long-term pure bond funds. Moreover, most have a relatively high proportion of institutional investors (as of the end of last year’s fourth quarter).

Wu Yuening, a senior analyst at Morningstar (China) Fund Research Center, told reporters that in the case of large redemptions, raising net value precision’s core role is to accurately reflect the actual value of the fund’s assets and effectively avoid damage to fund holders’ interests caused by net value calculation errors. Large redemptions will prompt the fund to carry out asset liquidation. If the net value precision is not good, the “rounding” error arising from how the tail digits of the redemption amount are handled may be significantly amplified.

“When there are only a small number of redemptions, the impact of this error is negligible, but in the case of a huge redemption, this deviation may cause harm to the rights and interests of remaining holders, or lead to unfair distribution of benefits to those redeeming. Increasing net value precision can ensure more accurate calculations of redemption amounts, reduce asset leakage caused by valuation tail discrepancies, and maintain the fairness of the fund’s net value calculations. This is a standard compliance measure that fund managers take when responding to redemption shocks.” Wu Yuening further analyzed.

Why have pure bond funds repeatedly encountered large redemptions recently? Industry insiders believe the reasons mainly come from three aspects.

Wu Yuening said: First, expectations for interest rates have shifted. Since March, volatility in the bond market has intensified. The yield on 10-year government bonds has risen quickly. Some investors’ concerns about interest-rate risk have significantly increased, leading them to choose to take profits and exit.

Second, liquidity conditions have tightened. At the end of the quarter, liquidity pressure has piled up, and central bank operations have been relatively cautious. The money-market interest rate’s center of gravity has moved upward. The room for leverage-and-carry strategies commonly used by pure bond funds has been compressed, and in some cases financing costs have even inverted, making the cost-performance for allocation clearly worse.

Third, institutional behavior has become more synchronized. Allocation-oriented funds such as bank wealth management products and insurance products, due to pressures on their own liability-side and/or evaluation deadlines, have made concentrated redemptions to adjust positions. In addition, some funds performed well earlier, which has also triggered institutional profit-taking needs.

Ge Shangs Fund Research analyst Jiang Rui also said that against a backdrop of a clear bond market adjustment, mid- to long-term pure bond funds with a relatively high duration experience larger fluctuations and are therefore more likely to be redeemed.

“Fixed-income+” redemption pressure draws attention

For “fixed-income+” funds that hold both bond and equity positions at the same time, their funding side faces pressure as well.

A research report recently released by GuoSheng Securities pointed out that “fixed-income+” uses pure bond holdings as a foundation and uses convertible bonds and stocks to enhance returns. As equity assets have weakened recently, “fixed-income+” funds have shown significant drawdowns, leading to increased redemption pressure.

Wind data shows that as of March 27, the cumulative returns since the beginning of the year for short-term pure bond, mid- to long-term pure bond, primary bond funds, and secondary bond fund indices were 0.45%, 0.64%, 0.65%, and 0.27%, respectively. Looking specifically at products, bond funds rely on coupon/interest income, so most cumulative returns are positive. The shares of short-term pure bond and mid- to long-term pure bond funds with cumulative returns negative since the start of the year are 3% and 7%, respectively. Meanwhile, primary bond funds and secondary bond funds account for 10% and 27%, respectively.

Wu Yuening analyzed that recently, multiple factors—including ongoing international geopolitical disputes disrupting the environment and increasing equity market volatility, as well as valuation pullbacks in convertible bonds—have caused some investors to reduce allocations or redeem. “Fixed-income+” funds are indeed facing a certain level of redemption pressure.

However, investors’ redemption behavior may be differentiated. A source from a fund company said that at present, among the company’s “fixed-income+” products, there have not yet been signs of large redemptions.

Industry insiders have also reminded that after the adjustment in this round ends, some funds are expected to flow back to “fixed-income+” products.

“Recent market trends are extreme. Except for crude oil, most major asset classes have been moving down. Weakness in both equities and the bond market has put “fixed-income+” performance through a test and increased market concerns about a redemption wave. In the short term, market volatility increases, and “fixed-income+” funds may feel some pain, but the long-term logic has not been broken. In a low interest-rate environment, (fixed-income+) remains the mainstream choice of ‘stable+enhanced.’ Once equities stabilize and the bond market steadies, funds will most likely flow back.” Jiang Rui explained.

Jiang Rui believes that investors need to clarify their own wealth-management needs and whether each product’s positioning matches their own risk appetite. The net value fluctuations in this round are mainly driven by multiple factors, such as the rise in bond market yields and the stage-by-stage linkage adjustment between the stock and bond markets. This is a market-stage adjustment. And short-duration bond and fixed-income+ products are inherently holding-type products, so it is not recommended to blindly carry out redemption solely due to short-term net value drawdowns.

Another possible direction is that if redemption pressure increases further, it may bring about a series of impacts.

Wu Yuening specifically said: First, market volatility is amplified. To meet liquidity needs, funds may be forced to sell bonds and stocks in parallel, creating a selling-pressure resonance. Second, liquidity risk and strategy deformation. Highly liquid equity assets and convertible bonds in the enhanced allocation portion will be monetized first. This not only weakens the product’s return elasticity, but may also cause the investment strategy to deviate from its intended goals, harming long-term competitiveness. Third, credit negative feedback. If there is concentrated selling of credit bonds or convertible bonds with relatively poor liquidity, it may trigger a vicious cycle of falling valuations and further redemptions, and even impact the secondary-market pricing system of related securities.

The bond market still mainly follows a range-bound pattern

To some institutions, the subscription and redemption behavior of “fixed-income+” funds has become one of the factors affecting the performance of the bond market.

In a research report, the Guotai Haitong fixed-income research team stated that compared with traditional mid- to long-term pure bond funds, “fixed-income+” funds hold both bond core positions and equity positions. Behind that, they also capture upstream allocation demand from entities such as insurance, wealth management, and annuities. Therefore, equity volatility is more likely to be transmitted to the bond market through portfolio adjustments and subscription/redemption activities. “Fixed-income+” fund capital has become an important marginal variable for observing the current bond market.

“The impact of “fixed-income+” fund behavior on the bond market is not linear. The Guotai Haitong fixed-income research team analyzed that when judging the impact of “fixed-income+” on the bond market, you cannot look only at whether the stock market is falling. You must also examine the pace of the decline, the duration, and whether subscription/redemption has become visibly active. If redemption pressure becomes visible, policy-bank bonds, perpetual bonds, and super-long government bonds often face pressure first, while local government bonds may have relatively better capacity to absorb. Convertible bonds may face both stock-and-bond dual pressure.

Looking ahead, the above research team believes that if equities only experience a gradual decline or stabilize, the overall bond-market environment remains relatively controllable. If external uncertainty heats up further and is transmitted upward to upstream funding behavior, the net redemption rate of “fixed-income+” funds may continue to rise, and long-duration policy-bank bonds, perpetual bonds, 30-year government bonds, and other products are more likely to come under pressure.

China Merchants Fund expects that the bond market will be unable to break out of a clearly defined trend rally and will still mainly remain in a range-bound, sideways pattern. With the combined influence of fundamentals, policies, and liquidity, the overall risk environment for the bond market is controllable, and breaking the strong factor keeping the range should wait for developments.

From an allocation perspective, the Guotai Haitong fixed-income research team judges that in the medium term, the bond market may present opportunities for allocation. In terms of timing, attention can focus on developments around mid-April; if equities weaken in a relatively smooth manner, this opportunity may come earlier. They emphasized that super-long bonds not only face disruptions from “fixed-income+” fund subscription/redemption, but also impacts from changes in expectations for economic fundamentals and short-selling mechanisms. In the short term, it is still appropriate to maintain a slightly neutral approach.

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