Foreign Investors Drive Chinese Bonds' All-Time High of USD4.6 Billion Daily Turnover in January

[TaiShang]

Foreign Investors Drive Chinese Bonds' All-Time High of USD4.6 Billion Daily Turnover in January

(Yicai Global) Feb. 4 -- Overseas investors have continued adding Chinese bonds to their portfolios for 26 months in a row, driving the highest average daily turnover ever last month, amid the country's rapid economic recovery and the appreciating yuan.

Foreign institutional investors held CNY3.1 trillion (USD472.9 billion) in Chinese bonds last month, an increase of 62 percent from a year ago and a 6 percent hike from a month earlier, the Shanghai Securities News reported today, citing data from the Bond Connect.

Average daily turnover exceeded CNY29.4 billion (USD4.6 billion) in January, setting a new historic high, based on data from the bond exchange program between the mainland and Hong Kong. Some 6,470 transactions were made over the month, with a trading volume of CNY588.3 billion (USD91.1 billion).

Over the past few days, the 10-year US Treasury bond yield has gradually risen while the US-China interest rate spread has fallen from a historic high of 250 basis points to 210 bips. Thus, the renminbi's appreciation against the US dollar has slowed with the exchange rate staying at around 6.45. But analysts are still optimistic about the Chinese market.

Foreign investors will widen their holdings by more than CNY1 trillion this year as yuan-denominated notes, which still make up less than 1 percent of all global assets, are increasingly included in international bond indexes, industry insiders predicted.

Enthusiasm has been growing for a while. Foreign investors added CNY1.07 trillion worth of Chinese bonds to their portfolios in December 2020 from a year ago.

The increased interest can be explained in three ways, said Zheng Kuifang at the Financial Markets Department of China Construction Bank. First, China’s economy has been recovering well due to its effective epidemic prevention and control, according to Zheng.

Secondly, the spread between Chinese and US 10-year Treasury bonds recently widened to historical highs. Moreover, the Chinese yuan has appreciated against the US dollar since last June so investors can gain on the strengthening redback, Zheng added.

Foreigners Pile Into Chinese Bonds, Driving Record Daily Turnover in January

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But, but Hong Kong is not free. Concentration camps...