Foreign Investors Step Up Investment in Chinese Bank Bonds
As of End-July, Value of Chinese Bank Bonds Held by Foreign Investors Hits 1 Trillion Yuan
According to the latest data, the total value of Chinese bank bonds held by foreign investors surpassed 1 trillion yuan at the end of July, marking a significant increase from 260 billion yuan at the same time last year. The growth reflects investors’ confidence in China’s bond market, despite Beijing’s recent rare interventions to cool the government bond market.
Chinese Bank Intervenes in Bond Market
In early August, the People’s Bank of China (PBOC), the central bank, made an unprecedented move by ordering banks in Jiangxi province to stop buying government bonds. The latest in a series of recent interventions by Chinese authorities to cool the bond market, the move comes as Chinese government bond yields have fallen to record lows, raising concerns about risks to the banking system.
Foreign Investors Shift Investments to Bank Bonds
While foreign investors have cut back on Chinese government bonds in recent times, they have increased their purchases of short-term bonds issued by Chinese banks. Mark Evans, Asia bond and currency analyst at Ninety One, said there is still room for government bond yields to fall further, with inflation in China remaining low, reflecting weak domestic demand.
People’s Republic of China Central Bank.
Chinese Bank Bond Yields Attract Investors
As of the end of July, the total value of negotiable certificates of deposit of Chinese banks held by foreign investors had reached more than 1 trillion yuan. The roughly 4 percentage point premium over government bonds makes Chinese bank bonds attractive, said Sabrina Jacobs, portfolio manager at Pictet Asset Management. Over the past year, bank bonds have accounted for about two-thirds of foreign investors’ net purchases of Chinese bonds, while government bond investment has fallen by about 50%.
PBOC Warns of Financial Crisis Risk
The People’s Bank of China (PBOC) has stressed that it is ready to intervene to prevent a sharp decline in long-term bond yields. Concerned that falling yields could lead to a financial crisis similar to the collapse of Silicon Valley Bank in the US last year, the PBOC has said it does not support one-sided expectations and herd behavior in the market.
Conclusion
Despite government intervention and concerns about financial markets, Chinese bank bonds remain attractive to foreign investors thanks to their high yields and short maturities.
