BEIJING – US investors are among many foreigners who want to take advantage of China, especially its bond market.
A clear area of interest is government bonds, in which the Chinese have a yield of over 3.2% for 10 years. In contrast, the latest US rate hike pushed the 10-year Treasury yield to just 1.7%. This large gap gives investors in Chinese government bonds a significantly higher return.
“US investors continue to be very interested in investing in the Chinese market,” Tao Wang, Asia’s chief economist and China’s chief economist at UBS, said on Thursday at a webinar with the International Finance Institute. “Especially from a bond market perspective, there is a structural increase in interest rates.”
While “China offers high and stable yields”, she noted that other countries continue to use growth-boosting measures that have led to negative yields for many bonds. This means that bond buyers will have to pay the issuer on the maturity date of the bond, rather than make money from it.
Specific data on US investors’ holdings were not available, but investors outside mainland China held about 3.5 percent of existing yuan bond issues at the end of February, according to Reuters. Foreign holdings of Chinese government bonds accounted for about 10.6 percent of last month’s emissions, Reuters said.
In just two years, foreign holdings of Chinese government bonds have nearly doubled to more than 2 trillion yuan ($ 307.7 billion), according to Wind Information.
The rising interest rate comes as Chinese bonds have been added to major investment indices that are being pursued by global investors, leading to billions of dollars in Chinese debt acquisitions.
These acquisitions have risen in recent months for JP Morgan Asset Management’s China Bond Opportunities Fund, according to Asia’s fixed-income portfolio manager Jason Pang.
“There is no clear reason why we should not be disconnected from this particular market,” he said. Pang stressed that the Chinese economy is ahead of other countries in terms of recovery from the coronavirus pandemic and said that the probability of “a much higher sale in China’s rates is much lower than the rest of the world.”
As much as international interest in the Chinese bond market has grown, Pang said much of the investment is still in an “experiential phase” as foreign investors need to learn more about the mainland Chinese market.