Investors invested billions in Chinese bond markets last year, reflecting the growing appeal of its debt to yield-hungry investors. Faced with the dilemma of ultra-low to sub-zero yields on their own sovereign debt, fund managers and pension funds in the US and Europe, along with global central banks, have latched onto China’s debt markets as Beijing seeks to open its capital markets to the rest of the world.
China’s foreign exchange regulator said on Friday that inflows to Chinese onshore debt hit a record $ 186.1 billion in 2020, bringing the total balance to $ 512.2 billion. Rising interest among foreign central banks was one of the key driving forces for the steady accumulation of Chinese debt in foreign hands, according to Wang Chunying, spokesman for the State Administration of Foreign Exchange (SAFE). Central banks now held $ 263.7 billion in Chinese bonds, according to SAFE data. The recent strength of the Chinese currency, supported by the relatively superior performance of Chinese economic growth over other developed economies in 2020, despite the coronavirus pandemic, has also underpinned the growing willingness of investors to buy yuan-denominated debt. The US dollar hit 6.4819 yuan USDCNY, + 0.31% on Friday, around the strongest levels of the renminbi since June 2018. And analysts say inflows are only expected to rise as suppliers of Indices raise the weighting of Chinese government bonds in their benchmark indices. Goldman Sachs said it forecasts investors could invest up to $ 140 billion of additional funds in Chinese debt this year, following FTSE Russell’s decision to include the Chinese government‘s role in its index of world government bonds. The yield on Chinese 10-year government debt BX: AMBMKRM-10Y stood at 3.15%, in contrast to the 1.09% yield on its comparable US note BX: TMUBMUSD10Y. See: Investors Flock to China’s Bond Market, Driven by Fear of Missing Out