As a sign of just how insulated the market is, the correlation between one gauge of China’s debt and a broader Bloomberg Barclays global aggregate held close to zero during the rout two weeks ago. The relationship is now just 0.2, where a reading of 1 would indicate the two move hand in hand and zero means there’s no correlation whatsoever.

That follows a similar pattern during the coronavirus pandemic turmoil last March where the market was very stable, defying the storm in US Treasuries.

Holding Chinese debt is an alluring proposition for money managers looking for fresh hedges to counterbalance to their riskier stock holdings, a bedrock of the ubiquitous 60/40 portfolio. It also comes as investors begin to ask serious questions about the plumbing of the Treasury market amid the recent volatility.

“Treasuries’ role as a safe haven is not there any more,” said Tracy Chen, a Philadelphia-based portfolio manager at Brandywine Global, who bought Chinese debt for the first time last year. “There is an increasing possibility of using China bonds as an alternative.”

Investors are taking notice. Foreign fund bought 93.6 billion yuan (US$14.4 billion) worth of Chinese debt in February, after adding positions at a record pace the previous month, egged on by the addition of China’s government and policy-bank bonds into the world’s major indices in 2019.

“From a relative value perspective, all stars are aligned,” said Jean-Charles Sambor, head of emerging-market debt at BNP Paribas Asset Management in London. “We’re likely to see rotation not only from low yielders in emerging markets but also from global markets into China.”

Still, there are plenty of risks that can throw a wrench into the trade. China is looking to curb a rapid build-up in financial leverage, which means the central bank may guide borrowing costs higher. The debt market has long been criticised for its poor liquidity since local lenders hold most bonds and do not actively trade them.

Last Friday, a normally dull Chinese policy-bank bond surged more than 200 per cent, sending the yield to minus 14 per cent by the close. While the move was erased on Monday, concern over what happened will linger.

“China has a lot of work to do in terms of boosting liquidity for investors and build some financial infrastructure to enable people to do futures,” said Brandywine Global’s Chen.

There is also the question of the geopolitical rivalry between the US and China that could spill over into the financial sphere, despite optimism that relations would improve under US President Joe Biden. Meanwhile, the nation’s capital controls make it an uneven playing field for foreign investors.

To access the market, international funds must wade through rounds of paperwork. Once in, they need to navigate local tax policy and do not have recourse to hedging tools. The central bank also maintains a tight grip on the currency and can often dictate its direction.

In contrast, the US$21 trillion US Treasury market is still the deepest in the world, with close to US$3 trillion changing hands each week on average over the past year. It serves as the benchmark risk-free rate for assets of many stripes. All that means it’s in a class of its own.

Despite the limitations, foreign investors are willing to make sacrifices to get their hands on Chinese debt.

“Every [chief information officer] we’re talking to is now making their first allocation to China,” said Hayden Briscoe, head of fixed income for Asia Pacific at UBS Asset Management in Hong Kong. “This is the single largest change in capital markets in anybody’s lifetime.”