SHANGHAI, July 22 (Reuters) – Foreign investors cut holdings
of Chinese bonds for a fifth consecutive month in June, official
data showed on Friday, as a perception of political risk and a
slowing economy sent funds fleeing from what was once a popular
trade.
Foreign holdings of yuan bonds traded on China’s interbank
bond market totalled 3.57 trillion yuan ($527.5 billion) at the
end of June, down from 3.66 trillion yuan a month earlier, the
People’s Bank of China (PBOC) said on Friday.
China’s $20 trillion bond market has suffered continuous
foreign outflows since February, as divergent monetary policy
has wiped out China’s yield advantage over the United States,
while rising geopolitical tension and fresh COVID-19 outbreaks
in China have also dampened investor appetite.
The yield of 10-year Chinese central government bonds
is roughly 12 basis points lower than that of their
U.S. counterparts, compared with a premium of nearly 130 basis
points at the end of last year.
More turmoil in China’s property markets, where some
homebuyers are refusing to repay mortgages on unfinished
apartments, could sour foreigners’ sentiment further, said ING’s
China economist, Iris Pang, in Hong Kong.
But with China’s fiscal health better than other big
countries’, and growth clouds hanging over the rest of the
world, she said outflows could slow and the yuan could recover
some of what it had lost this year.
Already the pace of outflows has slowed and a lockdown of
Shanghai ended last month. “The story of U.S. recession is
brewing, and China is starting to recover. I don’t think capital
outflows will last very long,” Pang said.
China has also launched a slew of stimulus to aid a
COVID-hit economy that grew just 2.5% in the first half.
China took fresh steps this month to lure foreign bond
investors, saying it would cut service fees, improve overseas
access to foreign exchange hedging, and streamline the process
of opening accounts.
Foreign holdings in Chinese bonds more than tripled from
2019 to 2021, but remain relatively small, accounting for 2.9%
of the interbank debt market, according to Friday’s data.
Their holdings are concentrated in government bonds and
quasi-sovereign policy bank bonds.
($1 = 6.7673 Chinese yuan)
(Reporting by Winni Zhou and Tom Westbrook; Editing by Shri
Navaratnam and Bradley Perrett)
