The Federal Reserve's rate hike has landed — a 25 basis point increase that brings the federal funds rate to 3.75%-4.00%, marking the first hike in over three years. The move itself came as no surprise, given how thoroughly markets had priced it in beforehand. What truly caught attention was the dot plot: among the 18 officials, 12 anticipate one more hike this year, four see two additional hikes, and only two believe rates should stay put for the remainder of the year. So what does this mean for the domestic bond market?

On September 15, the US 10-year Treasury yield briefly broke above 5%, a level not seen since 2007. On the same day, China's 10-year government bond yield slid to 1.681%. The yield spread between the two widened to 331 basis points — an extreme reading not recorded since data tracking began in 2002 (September 15, 2026, source: iFind). At this spread level, the downside room for domestic long-end rates appears limited. But "limited" does not mean "nonexistent."

The fundamentals of the domestic bond market remain unchanged. August retail sales grew just 0.4% year-on-year (source: National Bureau of Statistics), signaling persistently weak domestic demand. Meanwhile, the central bank conducted an equal-rollover of outright reverse repos in September, ending two consecutive months of increased liquidity injections. That said, short-term funding conditions are tightening. In early September, DR001 was still trading below the policy rate, but by mid-month — pressured by approaching tax deadlines and heavier government bond settlement — institutions boosted precautionary reserve demand, pushing funding rates steadily higher. By September 17, DR001 had climbed to 1.47%. The central bank that day stepped up open market operations with 600 billion yuan in overnight reverse repos and 162 billion yuan in 7-day reverse repos, yet the funding squeeze showed little sign of easing. Combined with accelerating government bond supply and ongoing tax-related disruptions, the bond market faces some near-term pressure.

However, these are temporary disturbances, not a shift in trend. Domestically, August economic data is weak, and the recovery in domestic demand still needs time. The direction of monetary policy remains accommodative — only the pace and intensity may prove more restrained than markets anticipated. Externally, the Fed's hike carries a neutral-to-positive bias for Chinese bonds — the renminbi's current pressure is tilted toward appreciation, the widening China-US spread stems mainly from the long end of US Treasuries, and this does not equate to a shrinking policy space for domestic monetary policy. If anything, further US rate increases could suppress overseas demand and risk appetite, offering some support for Chinese bonds.

Overall, the 10-year government bond yield is likely to continue oscillating within the 1.67%-1.70% range. A breakout below 1.65% would require fresh catalysts, while room to the upside appears equally constrained. So where does excess return come from in this kind of market? When direction is unclear, capturing "volatility returns" may be more practical than chasing "directional returns." As of September 16, 2026, CITIC Prudential Wenyue Bond A delivered a one-year return of 10.35%, ranking 1/1562 over the past year, and earned Morningstar's five-star ratings for both three-year and five-year periods.

Fund manager Wu Qiujun approaches this with a three-tier framework. First comes duration judgment — extending duration when rates fall to maximize gains, and shortening it during range-bound periods to control drawdowns. Second is swing trading — capturing even 0.25 to 0.5 basis point moves to accumulate a safety cushion through small wins. Third is drawdown control — pre-planning response strategies for different scenarios and executing timely stop-losses and profit-taking. In a one-way declining rate environment, buy-and-hold suffices to capture the gains from falling yields. But in a narrow band, high-frequency trading may become the primary engine of excess returns. When the market offers no big opportunities, the play is to accumulate every small one.

His framework boils down to three words: calculation, balance, sustainability. Calculation means daily precision on the duration deviation of trading bands, strictly managing risk budgets. Balance means finding the sweet spot between the performance curve and drawdowns. Sustainability means building a safety cushion through appropriately frequent rate trading. The second-quarter report shows the fund's top five bond holdings included "25 Ultra-Long Special Government Bond 02" at 33.78% and "26 Ultra-Long Special Government Bond 02" at 20.28%. Ultra-long bonds experience greater volatility, making them better suited for a swing-trading approach in a trendless environment rather than simple buy-and-hold.

The hawkish signal in the dot plot suggests external constraints won't disappear anytime soon. In this environment, products that can generate returns through trading skill may offer more reassurance than those that merely bet on direction. CITIC Prudential Wenyue was established on February 10, 2017, with the CSI Aggregate Bond Index as its performance benchmark. Over the past five years, its A-class shares recorded net value growth rates/benchmark returns of 2.92%/5.23% (2021), 2.20%/3.32% (2022), 2.18%/4.81% (2023), 4.44%/7.89% (2024), and 3.32%/0.70% (2025). C-class shares delivered 2.82%/5.23%, 2.08%/3.32%, 2.08%/4.81%, 4.37%/7.89%, and 3.23%/0.70% over the same periods. The D-class was added on November 26, 2024, posting 4.60%/2.81% from inception to December 31, 2025. Past performance does not guarantee future results, and fund net values are subject to fluctuation.

Risk disclosure: Funds differ from bank deposits and other instruments that provide fixed income expectations. When purchasing fund products, investors may share in investment gains or bear investment losses proportionally. Before investing, please carefully read the prospectus, product summary, fund contract, and other legal documents, as well as this risk disclosure, to fully understand the fund's risk-return characteristics and product features. Investors should independently assess their risk tolerance based on their investment objectives, horizon, experience, and financial situation, and make independent decisions when selecting appropriate products. Fund managers cannot guarantee fund profitability, minimum returns, or principal safety. The fund manager's risk rating for this fund is R2. Funds carry risks; invest with caution.