Photographer: Tomohiro Ohsumi/Bloomberg

Foreign Funds Boost China Government Bond Holdings by Record

  • Purchases rise in September before yuan’s IMF reserves entry
  • Gauge of sovereign debt rallied in 10 of past 11 quarters

Overseas investors increased their holdings of Chinese sovereign bonds by a record in September before the yuan entered the IMF’s reserves basket.

Foreign institutions bought a net 41 billion yuan ($6.1 billion) of government securities to boost their holdings to 385.97 billion yuan, according to data from China Central Depository & Clearing Co. That’s 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 said on its official microblog last month that global central banks and supranational organizations have added to their onshore yuan asset allocations. The Chinese currency entered the International Monetary Fund’s Special Drawing Rights 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 Li Liuyang, Shanghai-based market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd. “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. Policy makers 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 Investors program no longer have to apply for quotas to invest onshore.

Bond Rally

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’s 1.4 percent of a 53.8 trillion yuan market, according to Bloomberg calculations based on official data. The central bank is set to release third-quarter foreign holdings figures in a few weeks.

A Bloomberg gauge of China sovereign bonds has rallied in 10 of the past 11 quarters on speculation the monetary authority will keep interest rates low to combat the slowest economic growth in more than two decades. The benchmark 10-year sovereign yield is at 2.67 percent Monday, compared with 1.77 percent for similar-maturity U.S. Treasuries.

The yield on notes due August 2026 fell three basis points to 2.69 percent, after rising by about the same magnitude on Monday, according to National Interbank Funding Center prices.

— With assistance by Helen Sun

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