Foreign investors raise China onshore bond holdings in May

FOREIGN investors in May raised their holdings of China’s onshore yuan bonds for the ninth straight month, particularly in short-term debt instruments.

Foreign institutions held 4.22 trillion yuan (S$786.8 billion) in bonds traded on China’s interbank market as at end-May, the central bank’s Shanghai head office said, up from 4.05 trillion yuan a month earlier.

However, foreign investors have reduced holdings of Treasury bonds so far this year and increased negotiable certificates of deposits (NCDs), a short-term debt instrument in the interbank market.

A sputtering recovery in the world’s second-biggest economy has driven a record-breaking rally in Chinese government bonds over the past few months, with yields on 30-year bonds down as much as 40 basis points this year.

China’s central bank has repeatedly warned investors of financial risks on long-dated bonds, making some investors turn to NCDs and short-dated bonds.

Foreign investors increased their holdings of NCDs to 457 billion yuan worth so far this year.

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The yield gap between US and China’s 10-year Treasuries remains substantial at 194 basis points, exerting pressure on bond inflows.

China’s central bank left a key policy rate unchanged as expected on Monday (Jun 17) when rolling over maturing medium-term loans. REUTERS