SHANGHAI: Offshore investors increased their holdings of Chinese interbank market bonds by nearly 50% in 2020 to top $500 billion for the first time, official data showed on Thursday, as investors flocked to take advantage of record yield premiums.
Foreign bondholders held Chinese interbank market bonds worth 3.25 trillion yuan ($503.35 billion) at the end of December, according to Reuters calculations using data from clearing houses Central China Depository & Clearing Co (CCDC) and Shanghai Clearing House.
That was up 1.07 trillion yuan, or 48.8%, from a year earlier, and the first time such holdings have exceed $500 billion.
Foreign holdings of Chinese government bonds (CGB) were a record 1.88 trillion yuan at the end of December, up nearly 44% from a year earlier.
Holdings of quasi-sovereign policy bank bonds, which are easily traded and have higher yields than CGBs, surged 84.4% from a year earlier, the data showed, to 919.18 billion yuan. That was also a record high.
Foreign investor interest in Chinese bonds reached new heights in 2020, driven by their phased inclusion in major global indexes and relatively tight monetary policy, as authorities sought to control financial risks following an early economic recovery from coronavirus-related lockdowns.
"Chinese CGB or policy bank bonds still have much higher yields than major developed-market bonds, so when the Chinese economy stabilized during the pandemic, foreign investors (were) looking for a safe place to put long-term money," said Chaoping Zhu, global market strategist at J.P. Morgan Asset Management.
The spread of the benchmark 10-year CGB yield over 10-year US Treasuries rose to a record high of nearly 260 basis points by July, according to Refinitiv data. It remained above 200 basis points on Thursday, even as expectations of stronger stimulus and a possible tapering of bond purchases by the US Federal Reserve has boosted the US 10-year yield above 1%.
The People's Bank of China said on Wednesday that it would make its monetary policy flexible, targeted and appropriate in 2021, focusing on supporting small firms as the economic recovery continues.
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