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China’s US$13 trillion bond market, the world’s second biggest, has had nine consecutive months of net foreign inflows, and analysts expect the trend to continue as Beijing steps up efforts to attract inbound capital. Photo: AP

China yuan stabilisation against US dollar leads to influx of foreign interest in Chinese bonds

  • Global investors snapped up nearly US$10 billion worth of Chinese debt in November as the yuan stabilised against the US dollar
  • Net foreign purchases of Chinese bonds totalled 69.9 billion yuan (US$9.9 billion) in November, a surge from 10.8 billion yuan (US$1.5 billion) in October

Net foreign inflows into China’s giant bond market jumped nearly five-fold in November from a month earlier, as yield-hungry global investors snapped up nearly US$10 billion worth of Chinese debt as the yuan stabilised against the US dollar.

China’s US$13 trillion bond market, the world’s second biggest, has had nine consecutive months of net foreign inflows, and analysts expect the trend to continue as Beijing steps up efforts to attract inbound capital.

Net foreign purchases of Chinese bonds totalled 69.9 billion yuan (US$9.9 billion) in November, a surge from 10.8 billion yuan (US$1.5 billion) in October, according to Reuters calculations based on official data.

Gu Weiyong, chief investment officer at Shanghai-based asset manager Ucom Investment, said the yuan’s stabilisation against the US dollar in recent months has revived foreign interest in Chinese bonds.
Foreign money will continue to gush in as Chinese bonds offer enviable yields for global investor
Gu Weiyong

The Chinese yuan had edged up against the US dollar in November for the third straight month, supported by investor optimism over prospects of a preliminary agreement to defuse the protracted trade war between Beijing and Washington.

“Foreign money will continue to gush in as Chinese bonds offer enviable yields for global investors,” said Gu.

China’s benchmark 10-year treasury yields roughly 3.2 per cent, compared with 1.8 per cent for US counterparts. Investors in Europe and Japan suffer from negative interest rates.

“With the Chinese market increasingly opening to international investors, this is a good opportunity for us,” wrote Sandor Steverink, head of treasuries at Dutch pensions manager APG, which started investing in Chinese onshore bonds last month.

With the Chinese market increasingly opening to international investors, this is a good opportunity for us
Sandor Steverink

At the end of November, foreigners held nearly 2.2 trillion yuan (US$312 billion) worth of bonds, up one-fifth from the beginning of the year, according to data from the China Central Depository and Clearing Corporation and the Shanghai Clearing House.

Foreign holdings, however, account for less than 3 per cent of China’s onshore bond market. Foreign flows into China have been supported by the 20-month phased inclusion of Chinese bonds in the Bloomberg Barclays Global Aggregate Index, which began in April.

JPMorgan said in September that it would add Chinese government bonds to its emerging market local currency bond index from February 2020.

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