All categories

Demand for Chinese bonds from international investors has risen significantly

2018/4/24

Demand for Chinese bonds from international investors has risen significantly over the past two years and is forecast to grow further as Beijing opens up the country��s financial markets.

Holdings of onshore Chinese bonds by foreign institutional investors have increased by about 60 per cent since December 2016. Reforms such as the launch of the Bond Connect programme in July last year should help to facilitate fixed-income inflows from a wider pool of international investors.

Chinese 10-year government bonds currently offer a yield of 3.96 per cent, higher than the US (2.66 per cent), Germany (0.63 per cent) or Japan (0.08 per cent).

The Chinese government announced measures late last year designed to strengthen the financial system.

It also aims to reduce the debt pile that has accumulated in an effort to defuse risks that could destabilise the world��s second-biggest economy.

Although the country��s headline economic growth is expected to slow from its previously unsustainably high pace, China will remain the biggest driver of global economic expansion expected over the next two years.

Hayden Briscoe, head of fixed income Asia Pacific at UBS, says he expects to see a reduction in credit growth and further deleveraging this year, measures that should provide support to Chinese government bond yields.

UBS estimates that foreign investors hold just 2.1 per cent ($167bn) of China��s $7.6tn bond market, the third largest in the world.

Index providers are adjusting their benchmarks to reflect the growing importance of China in global fixed-income markets.

Mr Briscoe expects to see a ��major reallocation of capital�� once China is included in the global fixed-income indices, which are widely used as benchmarks by international investors.

Demand for Chinese bonds from international investors has risen significantly

Anhui Guohe Investment Ltd