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China foreign investor bond rush hits new highs

(ATF) The enthusiasm of foreign investors to increase holdings in Chinese bonds continues to rise. 

According to the China Bond Board’s latest data, total holdings of overseas institutional bonds in August were nearly 2.462 trillion yuan (close to US$360 billion), an increase of 117.83 billion yuan from July, and an increase of 42.82% year-on-year. 

This means foreign institutional investors increased their holdings of Chinese bonds for the 21st consecutive month.

The Bond Connect report shows that in August, Bond Connect had 5,086 transactions, with a total trading volume of 409.3 billion yuan and an average daily trading volume of 19.5 billion yuan. 

In terms of the types of traded bonds, policy financial bonds, treasury bonds and inter-bank deposit certificates were actively traded. A total of 186.4 billion in Chinese bonds were traded, accounting for 46% of the monthly trading volume, an increase of 12 percentage points from the previous month. 

At the end of August, the number of foreign institutional investors entering the market via Bond Connect reached 2,106 and 40 new investors were added that month. Plus, 74 of the world’s top 100 asset management companies have completed filings and entered the market.

Sun Binbin, chief fixed-income analyst at Tianfeng Securities, told Economic Information Daily News that foreign institutions’ increased holdings of yuan bonds continue to hit new highs, mainly due to the expansion of the Sino-US interest rate differential to historical highs, and the attractiveness of domestic interest rate bonds to foreign institutions.

Due to the tragedy of the coronavirus epidemic in the United States, it will take some time for the economy to recover. It is expected that the Sino-US interest rate differential will remain high in the short term. In the next few months, foreign institutions may maintain a certain increase in domestic interest rate bonds.

In related news, the People’s Bank of China recently released financial market data for July, showing that the bond market issued a total of 4.7 trillion yuan of various bonds. At the end of that month, the bond market custody balance was 109.4 trillion yuan. 

Gao Fei, deputy director of the Financial Market Department of the central bank, said that in the first seven months of this year, China issued a total of 31 trillion yuan worth of bonds, of various types. Bond financing showed the characteristics of “increasing volume and decreasing price”, and it was well undertaken to support the development of the real economy.

Chris Gill

With over 30 years reporting on China, Gill offers a daily digest of what is happening in the PRC.

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