The coming two decades are poised to witness a significant downward trajectory in market interest rates, reshaping the financial landscape as we know itThis decline can be attributed to a multitude of factors, primarily stemming from the sluggish growth of the Chinese economy and demographic shifts, particularly the aging of its populationWith the GDP growth rate having retreated to just above 5% from the staggering 9% and 10% of two decades prior, the Chinese government is incentivizing investment and consumption through the mechanism of lowering interest ratesThis strategy reflects a broader understanding of economic cycles and the need to spur demand in times of economic lethargy.

Demographically, China has transitioned into an aging society, as highlighted by the Ministry of Civil AffairsAccording to a report released on December 14, 2023, by the end of 2022, the elderly population (aged 60 and above) had reached approximately 280 million, making up 19.8% of the total population, while those aged 65 and older amounted to about 209 million, or 14.9% of the general populace

The common threshold for a society to be considered aging is when 10% of its population is over 60 or 7% is over 65. Based on this metric, it’s evident that China has already crossed into the domain of an aging society.

The economic implications of this demographic shift extend beyond mere economic growth analysesMany economists have discussed the socioeconomic consequences of an aging population, but the financial ramifications are equally criticalAn increased number of elderly individuals typically results in a decline in overall consumption capability; elderly citizens are less likely to take out loans for purchasing homes or vehiclesConsequently, commercial banks find themselves in a predicament where the supply of funds outstrips demand, leading to a simplistic but profound conclusion: both deposit and loan interest rates are bound to fall.

This long-term decline in interest rates is anticipated to persist for at least the next 20 years

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Alongside demographic transformations, urbanization in China also plays a critical role in shaping macroeconomic trendsWith over 65% of the population now living in urban areas, urban growth is expected to plateauWhen urbanization growth decelerates, coupled with an aging population, consumer and investment growth inevitably slows, resulting in diminished overall demands in the economy.

For the government to maintain substantial employment levels and stimulate economic growth, a systematic reduction in interest rates becomes imperativeIn summary, as long as the dual trends of aging and slowing urbanization remain intact, a sustained downward shift in market interest rates is unavoidable.

As the market trends toward lower interest rates, a notable shift in investment strategies among residents is also expectedThe prolonged decline in interest rates means that traditional fixed-income investments, such as bank deposits, cash management accounts, and short-term debt securities, will yield diminishing returns

In stark contrast, equity assets such as stocks and equity funds, along with 30-year bonds, will become increasingly attractive, highlighting a significant shift in asset allocation preferences.

This raises an interesting question: why do 30-year bonds suddenly garner attention even as interest rates decline? The answer lies in the duration of these bondsDuration, albeit a complex concept, can be understood simply: the longer the maturity of a bond, the greater its sensitivity to interest rate changesTherefore, when market interest rates decrease by a basis point, the price gain on a 30-year bond will typically exceed that of shorter-duration bonds.

In the case of shorter-term bonds (like those with a 1-year maturity), individuals primarily gain returns through interest paymentsConversely, for long-term bonds (especially 30-year ones), returns often stem from selling at a higher price

The inverse relationship between bond prices and yields demonstrates that as government bond yields decline, their prices rise, creating a compelling case that market interest rates, decreasing over time, will push bond prices up.

As investors become increasingly aware of market dynamics, the introduction of 30-year bond exchange-traded funds (ETFs) represents a significant breakthroughUnlike direct investments in 30-year bonds, which are often dominated by institutional investors, 30-year bond ETFs make this investment vehicle accessible to individual investorsThey offer notable advantages over direct bond purchases.

Firstly, these ETFs have low entry barriers, allowing individual investors to participate without extensive capitalThe minimum transaction unit is only 100 shares, which approximates to around ¥10,000. This accessibility means that anyone with a stock account can trade freely during market hours.

Secondly, these ETFs allow for highly efficient trading with a T+0 transaction model

This presents a crucial advantage, especially given the volatility experienced in the equity ETF market where intra-day trading may not yield significant benefits in low-volatility environmentsHowever, the nature of a 30-year bond ETF fosters substantial intra-day price movements, making it favorable for active traders.

Lastly, the liquidity of 30-year bond ETFs is enhanced through market-making support, facilitating immediate transaction execution without a lack of counterparties, which greatly improves trading efficienciesInstitutional investors can leverage these ETFs to swiftly adjust portfolio duration or hedge equity positions, streamlining their investment strategies.

Within the realm of 30-year bond ETFs, Pengyang Fund stands out prominentlyIt has pioneered the first 30-year bond ETF, thereby establishing a significant presence in this niche marketThe Pengyang government bond ETF (511090) has achieved remarkable success in terms of returns, outperforming major indices and surpassing traditional bond fund returns since its inception on May 19, 2023.

The fund management team at Pengyang is comprised of industry veterans and is recognized for its comprehensive investment research system