A stable yuan exchange rate and higher yields have been attracting overseas institutions to Chinese bonds, pushing offshore holdings to new highs, according to the central bank.
The Shanghai head office of the People’s Bank of China (PBoC) on January 10 said overseas institutions held four trillion yuan ($628 billion) of China’s interbank bonds by the end of December, up 23 per cent year-on-year.
Chinese government bond (CGB) holdings by offshore investors reached a record 2.45 trillion yuan at the end of December, up nearly 31 per cent year-on-year. Holdings of quasi-sovereign bonds issued by China’s policy banks also jumped 18 per cent year-on-year to a record 1.08 trillion yuan by the end of December.
By the end of last year, there were 1,016 offshore institutions trading in China’s interbank bonds. Six of them were newcomers that started trading in December.
The bond connect programme linking the mainland Chinese and Hong Kong bond markets, which was launched in July 2017, were a major investment channel. Some 728 overseas institutions opted for this channel last year, according to data in the public domain.
The inclusion of Chinese bonds in major international indexes has increased global investors’ passive allocation of Chinese bonds. For instance, CGBs were included in FTSE Russell’s World Government Bond Index in late October.
China bonds were included in the Bloomberg Barclays Global Aggregate Index in April 2019 and JPMorgan’s GBI-EM Index in February 2020.
The trend will likely continue this year, with up to $125 billion in foreign capital expected to flow into the Chinese bond market, thanks to their inclusion in major indexes, said Xia Yinyin, credit research analyst with UBS Securities.
CHINA DAILY/ASIA NEWS NETWORK