Yield-chasing and risk-taking behaviors in the government bond market have become increasingly pronounced amidst monetary policy adjustments and rising economic uncertainty. We construct a theoretical model of fund manager portfolio allocation to analyze the duration channel underlying these behaviors and empirically test this mechanism using data on Chinese bond funds. The results show that: (1) When liquidity tightens following open market operations (OMO), bond fund returns decline, accompanied by a distinct shift in risk contribution. (2) During liquidity easing, funds engage in yield chasing by extending portfolio duration to capture returns through increased interest rate risk exposure. (3) High economic uncertainty amplifies yield-chasing behavior while attenuating the risk conversion phenomenon. (4) Portfolio analysis indicates that long-short strategies based on duration management generate significant risk-adjusted returns but fail to deliver excess returns. These findings offer theoretical insights and practical implications for managing and mitigating interest rate risk in the government bond market.
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