The year 2025 has commenced, and already the bond exchange-traded fund (ETF) sector is experiencing an unprecedented expansion, following a remarkable doubling in size in 2024. The financial landscape has shifted as new products flood the market, showcasing a growing appetite among investors for diversified investment vehicles.

In just over a week, the release of eight distinctive benchmark market-making credit bond ETFs has come to an early closure for their fundraising effortsRemarkably, several of these ETFs received subscription requests surpassing their 3 billion RMB fundraising cap, which led to a proportional allocation of sharesCollectively, this new wave of ETFs is set to add over 22 billion RMB to the bond ETF market—a clear indication of the robust demand for these financial instruments.

As a result, the total market size of bond ETFs is poised to breach the 200 billion RMB threshold, marking a significant milestone in the evolution of this investment category.

The rapid establishment of these products underscores the fierce competition among public fund institutions vying for a share of the burgeoning ETF market

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Launched on January 7, 2025, these eight credit bond ETFs completed their fundraising goals in less than ten working daysOne standout among them was the Southern Securities Company Bond ETF, which achieved its subscription target in a mere two trading days.

On January 8, the Southern Securities ETF concluded its fundraising efforts ahead of schedule, attracting subscriptions exceeding the 3 billion RMB limitGiven this overwhelming demand, a "proportional allocation" strategy was employed to fairly distribute shares, with an impressive confirmation rate for valid subscription requests reaching 98.700%.

Following this, additional ETFs—including those from Haitong Securities and Bosera—involved in the issuance of benchmark credit bond ETFs also closed their fundraising processes earlyNotably, the Southern Securities Bond ETF officially commenced operations on January 13, with the remaining five ETFs launching simultaneously on January 16.

In examining the fundraising figures, six of the newly established ETFs reported issuance scales falling between 2.9 billion and 3 billion RMB, while the Dacheng Shenzhen benchmark market-making credit bond ETF had an issuance size of 1.529 billion RMB

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If the two yet-to-be-launched ETFs follow suit with the 3 billion RMB target, this latest wave of instruments could potentially bring in over 22 billion RMB to the bond ETF market, signifying robust investor demand.

According to analyst insights from Haitong Fund, the underlying index for these credit bond ETFs primarily features high-grade credit bonds publicly traded on exchanges, characterized by superior issuer quality, good liquidity, and reduced credit riskThis contribution to market diversification is vital, particularly in the current economic climate.

With an accommodative monetary policy and low interest rates, the introduction of benchmark market-making credit bond ETFs enriches the product landscape, providing investors with additional tools to navigate the bond market effectively.

It's also significant to note that until recently, the market was limited to a single mid-to-high-grade credit bond ETF—the Ping An Company Bond ETF

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As of December 31, 2024, this fund had an asset net value exceeding 10.9 billion RMB, a substantial increase from 6.04 billion RMB at the end of 2023. The arrival of newer products could further intensify market competition, prompting existing ETFs to streamline their fee structures.

In a bid to remain competitive, Ping An Fund announced a reduction in the fund fees for its ETF, beginning January 17, lowering management fees and custodial charges to 0.15% and 0.05%, respectivelyThis adjustment aligns the fees with those of the newly launched benchmark credit bond ETFs.

Despite the burgeoning interest in credit bond ETFs, the bond market has shown signs of instability as the year beganInvestors are keeping a close eye on upcoming market developments.

The fixed income team at Guosheng Securities elaborates that the economy is currently more reliant on domestic demand, which necessitates a supportive low-interest rate environment

Thus, the potential for substantial adjustments in the bond market remains limitedHowever, tightening short-term capital conditions have increased capital pricing and short-end bond rates, flattening the yield curve and placing constraints on the broader bond market.

The team anticipates that the bond market will continue to exhibit volatility until the Lunar New Year, after which they expect a return to a more normalized liquidity environment, potentially offering room for short-end rates to decline, further contributing to overall downward pressure on interest rates.

Wang Yuan, a fund manager at Ping An, observes that volatility surrounding both interest rates and credit dynamics is likely to increase throughout 2025. While there may be continued adjustments in the market, the fundamental outlook shows no clear negative signalsTherefore, traders will likely engage in strategies of "selling short and buying long," particularly considering the overwhelming advantages of high-grade mid-to-short-term bonds, which typically exhibit both lower credit risks and greater liquidity.

From Wang's perspective, the high-grade, medium-duration credit investments offer a reliable pathway for solid returns amid fluctuating market conditions

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As the market faces adjustments, these high-quality bonds often demonstrate superior resilience, with drawdowns generally falling short compared to lower-grade bonds.

Conversely, market participants from Minsheng Jianyin Fund have pointed out existing vulnerabilities on the part of institutional behaviorDuring market adjustments, it is critical not to underestimate the potential impacts arising from the fragility of institutional liabilities and the negative feedback loops they can generate within the bond market.

As the bond market opened this year from a high starting point, factors such as low interest rates and narrow spreads carry the risk of leading investors into a landscape marred by low returns and high volatilityThus, managing risk will undoubtedly be an essential focus for institutions throughout the year.

In terms of strategy, it is advisable for investors to remain vigilant for key signals and market indicators, allowing for the early identification of potential adjustments