Foreign holdings of Chinese bonds reached a new record in January as hopes for a China-US trade deal and indications of a pause in the US Federal Reserve's tightening cycle helped to bolster the yuan. Offshore investors held 1.75 trillion yuan ($259.06 billion) of Chinese onshore bonds at the end of January, according to Reuters' calculations based on data from Shanghai Clearing House and the China Central Depository and Clearing Co (CCDC), the country's primary bond clearing houses.
That was an increase of 25 billion yuan from the previous month, and the highest value on record. Chinese treasury bonds comprised the majority of offshore holdings, at 1.1 trillion yuan at the end of January, up 0.2 percent from the previous month, and also a new record.
Foreign interest in Chinese bonds has been supported in recent months by a more stable yuan currency as hopes grow that the United States and China will be able to reach a deal to resolve their trade dispute. President Donald Trump added to hopes that punishing tariff hikes could be avoided on Tuesday, saying that he could let the March 1 deadline for a trade agreement with China "slide for a little while," but that he would prefer not to.
Trump also said he expects to meet with Chinese President Xi Jinping to close a trade deal, but did not specify a date. He previously said he would not meet with Xi before the March 1 deadline. The yuan gained 2.6 percent versus the dollar in January, its best month in a year.
A cautious shift by the Federal Reserve also boosted the yuan late in the month, with the US central bank discarding promises of gradual rate increases and saying it would be "patient" before making further moves.