BEIJING US investors are among many foreigners looking to profit from China, especially its bond market.
One clear area of interest is in government bonds, where the Chinese 10-year has a yield of over 3.2%. In contrast, the latest US rate hike pushed the yield on 10-year Treasuries to just 1.7%. This big difference gives Chinese government bond investors a significantly higher yield.
“American investors continue to be very interested in investing in (the) Chinese market,” Tao Wang, head of the Asian economy and chief Chinese economist at UBS, said Thursday during a webinar with the Institute of International Finance. “Especially from the point of view of the bond market, there is a structural increase in interest.”
While “China offers high and stable returns,” she noted that other countries are still using measures to stimulate growth that have resulted in negative returns for many bonds. This means that bond buyers will have to pay the issuer when the bond matures, rather than making money out of it.
Specific data on the holdings of U.S. investors was not available, but investors outside of mainland China held about 3.5% of existing yuan-denominated bond issues at the end of February, according to Reuters. Foreign holdings of Chinese government bonds in particular reached about 10.6% of issuance last month, Reuters said.
In just two years, foreign holdings of Chinese government bonds nearly doubled to 2 trillion yuan ($ 307.7 billion), according to data from Wind Information.
The increased interest comes as Chinese bonds have been added to major investment indices tracked by global investors, resulting in billions of dollars in Chinese debt purchases.
Those purchases have increased in recent months for JP Morgan Asset Management’s China Bond Opportunities Fund, according to Jason Pang, the firm’s Asia fixed-income portfolio manager.
“There is no clear reason why we shouldn’t be disengaged from this particular market,” he said. Pang pointed out that the Chinese economy was ahead of other countries in resuming the coronavirus pandemic, and said the likelihood of “a much larger rate sell-off in China is much lower than that from the rest of the world “.
As international interest in the Chinese bond market has grown, so Pang said much of the investment is still in an “experiential phase” as foreign investors still need to know more about the mainland Chinese market.
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