Multiple Banks Suffer Unrealized Losses on Bond Investments, China Merchants Bank Down Over 8 Billion Yuan

Bond Market 'Natural Bulls' Face Headwinds as Multiple Banks' Annual Reports Reveal Unrealized Losses

As 2024 annual reports are disclosed in quick succession, a phenomenon drawing market attention has emerged: as the bond market's "natural bulls," multiple listed banks suffered varying degrees of losses in their bond investments last year. Among them, China Merchants Bank posted unrealized fair value losses exceeding 8 billion yuan, sparking widespread industry discussion.

"Last year's bond market allocation was not easy. Banks were all restricting long-duration bond trading, and some institutions even engaged in short-selling through bond lending," described the head of investment at one bank regarding last year's market environment.

Over 20 Listed Banks Report Negative Fair Value Changes

Based on recently disclosed annual report data from listed banks, the difficulty of bond investment in 2024 is evident. Taking fair value changes in profit and loss — an indicator significantly influenced by bond investments — as an example, over 20 listed banks recorded negative values for this metric, meaning that financial assets measured at fair value held by these banks experienced market value declines during the reporting period.

Among them, China Merchants Bank's unrealized fair value losses exceeded 8 billion yuan, standing out conspicuously among all listed banks. As the "top performer" among joint-stock banks, CMB's significant unrealized losses on bond investments reflect the common challenges the entire banking industry faced in fixed-income investment last year.

Notably, fair value change losses are "unrealized losses" rather than actual realized losses. This means that if bond prices subsequently recover, the related losses could be reversed. However, in the short term, the drag effect of this indicator on banks' income statements cannot be ignored.

Multiple Factors Converge to Pressure Bond Market Investment

Looking back at the 2024 bond market, banks faced challenges on multiple fronts.

Interest rate volatility increased risk management difficulty. The bond market underwent multiple rounds of adjustment and rebound last year, and rapid changes in the yield curve put significant valuation pressure on banks' traditional "buy and hold" strategies. Long-duration bonds were particularly affected, as their prices are more sensitive to interest rate changes and exhibit greater volatility.

Regulatory guidance restricted long-duration bond allocation. Under policy directives aimed at preventing interest rate risk, banks widely limited their long-duration bond trading exposure. Some institutions even engaged in short-selling through bond lending to hedge risks or capture returns — a practice rarely seen in banks' proprietary investment operations, which have traditionally been dominated by long positions.

Continued narrowing of net interest margins forced strategy adjustments. Against the backdrop of continuously compressing deposit-loan spreads, banks' reliance on financial investment returns has increased, yet the complexity of the market environment has made the goal of "boosting returns" increasingly difficult.

Industry Actively Seeks Change: Structural Optimization and Capability Enhancement

Facing the bond investment dilemma, the banking industry has not waited passively but is actively exploring countermeasures.

The aforementioned investment head noted that looking ahead to bond market investment in 2025, optimizing the internal structure of financial investments is likely to be a key initiative. This includes greater diversification in asset allocation, more refined duration management, and more differentiated credit strategies.

At the same time, enhancing trading capabilities is seen as a critical path for banks to boost returns. In the past, bank bond investments were primarily allocation-oriented, emphasizing "buy and hold to maturity." In the new environment of intensified market volatility, the importance of active management capabilities such as swing trading and relative value trading has become increasingly prominent.

Some leading banks have already begun increasing investment in financial technology, leveraging AI quantitative models and big data analytics tools to support bond investment decision-making, aiming to capture more trading opportunities in complex market conditions.

Outlook: Opportunities and Challenges Coexist for Bond Investment in 2025

Entering 2025, global economic uncertainty remains elevated, while domestic monetary policy maintains a flexible and moderate tone. For bank bond investment, there are both capital gain opportunities from a potentially further declining interest rate center and risks of rising interest rates from policy shifts or stronger-than-expected economic recovery that require vigilance.

Industry professionals generally believe that bank bond investment will gradually shift from the previous "extensive allocation" model to a "refined management" model. In this transformation, the development of investment research systems, the improvement of risk control capabilities, and the application of technological tools will become key factors determining the divergence of investment performance among banks.

For investors, paying attention to changes in financial investment-related items in bank annual reports has become an important dimension for evaluating banks' operational quality and risk management capabilities.