Global funds are buying China’s best-performing bonds at a record pace as benchmark yields stand out in a world of cheap money

Foreigners added 50 billion yuan of the nation’s sovereign debt in July, according to data provided by ChinaBond

Global investors boosted their holdings of China’s local government bonds by 1.2 billion yuan last month, or about 11 per cent of bonds outstanding

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A construction site in the Hubei provincial capital of Wuhan on April 30, 2020. Photo: Xinhua

Published: 10:39am, 5 Aug 2021Updated: 10:39am, 5 Aug 2021

Global funds accelerated the purchases of Chinese government debt, the best-performing bonds in the world this year, as expectations of policy easing put China ahead of other nations that are moving toward withdrawing the stimulus deployed in the pandemic era.

Foreigners added 50 billion yuan (US$7.7 billion) of the nation’s sovereign debt in July, increasing their holdings to a record 2.18 trillion yuan, data from ChinaBond show. The purchase was nearly four times that of June, reversing a two-month slowdown. The world’s first major economy that emerged from the pandemic is showing more signs of slowing down, boosting the appeal of its debt. The bond rally started after China policymakers surprised investors last month with the first cut in reserve requirement ratio in more than a year. It gathered pace in recent weeks as a worsening coronavirus outbreak in parts of the country and an equity sell-off sparked by regulatory crackdown in several industries bolstered expectations for more policy easing.

China’s benchmark 10-year yield fell last month by the most since February 2020. The yields has declined 31 basis points this year, more than any other major bond markets tracked by Bloomberg. At 2.83 per cent, the yield is still more than twice higher than US Treasuries’ 1.13 per cent.

The People’s Bank of China looks to be charting an independent path, diverging from global central banks including the Federal Reserve, as it seeks to provide support to a slowing economy. A meeting of the Chinese Communist Party’s elite Politburo chaired by President Xi Jinping at the end of July pledged more effective fiscal support for the economy and said monetary policy would provide sufficient liquidity.

“The wider rate differential between China and US bonds and easing monetary expectations drove offshore investors to buy more Chinese government bonds in July,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group.

Global investors boosted their holdings of China’s local government bonds by 1.2 billion yuan last month, the most since Bloomberg started compiling the data in 2019. As of July, they accounted for about 11 per cent of China’s government bonds outstanding.

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