SHANGHAI, July 21 (Reuters) – Foreign investors
increased their holdings of China’s onshore bonds for a second
consecutive month in June, official data showed on Friday, as
currency-hedged yuan bond returns remain attractive and the
country further opens up its bond market.
Foreign holdings of yuan-denominated bonds traded on China’s
interbank market stood at 3.28 trillion yuan ($457.53 billion)
at end-June, up from 3.19 trillion yuan a month earlier, the
central bank’s Shanghai head office said.
The latest data suggests foreign holdings, which now account
for 2.5% of China’s interbank bond market, steadied in June.
The foreign exchange regulator said overseas investors have
purchased a net $79 billion worth of onshore yuan bonds in the
first half of this year, reversing the net outflows seen for the
whole of 2022.
Wang Chunying, spokeswoman at the State Administration of
Foreign Exchange (SAFE), told reporters the regulator expects
foreign investors to continue buying yuan-denominated assets and
sees room for stable and sustainable growth for foreign
investments in China’s bond market.
The U.S. Federal Reserve is near the top of its rate
tightening cycle and when the interest rate differential between
U.S. and China bonds stops widening, yield seeking investors
would more lean towards adding yuan bond positions.
The spread of 10-year U.S. Treasuries and China
government bond yield peaked at a eight-month high
of 135 basis points in early July.
As long as the currency-hedged yuan bond return remains
attractive, there will continue to be opportunistic investor
flows into China’s bond market, said Pin Ru Tan, head of Asia
Pacific Rates Strategy at HSBC.
Foreign purchase of China government bonds may be FX hedged
via instruments such as dollar-yuan swaps, given the hedged yuan
bond yield was more attractive, analysts at HSBC wrote in a
report.
Meanwhile, China announced fresh measures at the end of June
to facilitate foreign investment into the country’s bond market,
saying it would cut service fees, improve foreign access to
forex hedging, and streamline the process of opening accounts.
($1 = 7.1690 Chinese yuan renminbi)
(Reporting by Shanghai Newsroom; Editing by Kim Coghill and
Lincoln Feast)
Read More: Foreign investors embrace yuan bonds for a second consecutive month