Foreign investors cut China government bond holdings in February

[SHANGHAI] Foreign investors trimmed their holdings of Chinese government bonds at the fastest rate in 3 years in February, official data showed, as rising geopolitical risks sparked a global flight to safety.

Offshore investors held Chinese government bonds (CGBs) worth 2.48 trillion yuan (S$534.2 billion) at the end of February, according to data released on Monday (Mar 7) evening by China Central Depository and Clearing Co (CCDC), the main depository institution for China's interbank bond market.

That was down 1.41 per cent from a month earlier, the biggest percentage drop since a correction hit the domestic debt market in February 2019, and the first fall since last March.

Holdings of quasi-sovereign bonds issued by China's policy banks, typically the most liquid instruments traded on China's interbank bond market, fell 2.66 per cent from a month earlier to a seven-month low of 1.05 trillion yuan. That was the steepest drop since the yuan sank to a 10-year low in October 2018.

In contrast, the yuan in February enjoyed its best month against the dollar since May, while also climbing to 6-1/2-year highs against a basket of currencies.

Gary Ng, an economist with Natixis in Hong Kong, said the falls were "quite surprising" given the yuan's stability and rising status as a shelter amid the Ukraine crisis.

"Global risk-off sentiment seems to be a decisive factor,"he said, adding that funds unable to sell Russian assets might turn to assets from other emerging markets including China as a source of liquidity.

Analysts at ANZ said last week that Russian entities, cut off from much of the global financial system, could potentially try to liquidate their assets to meet other payment obligations.

Russia's central bank and sovereign wealth fund may hold US$140 billion worth of Chinese bonds, nearly a quarter of foreign holdings, ANZ estimated.

Ng at Natixis said it is "hard to conclude" whether Russian investors had sold Chinese bonds in March. CCDC does not break down offshore holdings by country.

Additional interbank market holdings data from Shanghai Clearing House was not yet available on Monday. REUTERS