Foreign funds boost China govt bond

BEIJING • Overseas investors increased their holdings of Chinese sovereign bonds by a record last month before the yuan entered the International Monetary Fund's (IMF) reserves basket.

Foreign institutions bought a net 41 billion yuan (S$8.4 billion) of government securities to boost their holdings to 385.97 billion yuan, according to data from China Central Depository & Clearing. That is more than three times the average monthly increase this year, and extends an unprecedented buying streak to 11 months.

The latest figures come after the People's Bank of China (PBOC) said last month that global central banks and supranational organisations have added to their onshore yuan asset allocations.

The Chinese currency entered the IMF's Special Drawing Rights (SDR) on Oct 1 in the first revision since 1999, a move that may prompt monetary authorities around the world to buy more Chinese assets.

"This shows that joining the SDR basket helps to bring more inflows," said Bank of Tokyo-Mitsubishi UFJ (China) market analyst Li Liuyang. "As more institutions complete the registration processes, there should be more inflows. After all, Chinese government bonds, compared with the other major economies', are very attractive."

The increased buying comes after China eased access for foreign investment in the nation's debt. Policymakers have, since February, allowed all types of medium- to long-term investors to access the interbank bond market, and said that approved fund managers under the Qualified Foreign Institutional Investor programme no longer have to apply for quotas to invest onshore.

Global funds held 764 billion yuan of onshore bonds - government and corporate - at the end of June, latest available data from the PBOC show. That is 1.4 per cent of a 53.8 trillion yuan market, according to Bloomberg calculations. The central bank is set to release third-quarter foreign holdings figures in a few weeks.

The benchmark 10-year sovereign yield on China sovereign bonds is now at 2.67 per cent, compared with 1.76 per cent for similar-maturity United States Treasuries. The yield on notes due August 2026 fell to 2.69 per cent.

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A version of this article appeared in the print edition of The Straits Times on October 12, 2016, with the headline 'Foreign funds boost China govt bond'. Print Edition | Subscribe