China Cash Squeeze a Boon for Foreigners Snapping Up Bank Bonds
- Foreign holdings of short-term NCDs hit a record this year
- Investors attracted by yield-pick up amid rate squeeze
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Amid a foreign exodus from China’s bond market a hardy few are choosing to stick it out, leveraging attractive rates for swapping dollars into a lucrative trading strategy in short-term bank debt.
Their target is negotiable certificates of deposits, short-term bonds sold by banks with maturities of up to a year and the kicker is the premium for overseas investors get swapping US currency for yuan in China’s onshore market. A trader who does this and ploughs her yuan into NCDs can obtain a return of around 100 basis points above that of Treasuries according to calculations by Bloomberg.