China debt: foreign holdings of government bonds topped 10 per cent for first time in January

Foreign investors held more than a tenth of all outstanding Chinese government bonds for the first time in January, official data showed, as demand surged on a combination of higher yields and a stronger yuan.

Total offshore holdings of Chinese government bonds stood just shy of 2 trillion yuan (US$310 billion) at the end of January, according to data from China Central Depository and Clearing Corporation (CCDC), the main interbank bond market clearing house.

That accounted for 10.3 per cent of outstanding Chinese government bonds and was an increase of 121.11 billion yuan from the previous month, according to Reuters calculations. It was the biggest percentage monthly increase since July 2018.

Holdings of quasi-sovereign bonds issued by China’s policy banks rose 4.1 per cent from the end of December to a record 956.95 billion yuan, CCDC data showed.

Total foreign holdings of all interbank bonds stood at a record 3.54 billion yuan, accounting for 3.4 per cent of all outstanding bonds, according to Reuters calculations using data from CCDC and the Shanghai Clearing House.

While the spread has narrowed from November highs, 10-year Chinese government bonds continue to yield 200 basis points more than 10-year US Treasuries, according to Refinitiv data.