China’s Bond Sell-Off Won't Signal a Global Bear Market

The unrelenting sell-off in China’s $9 trillion onshore bond market last year caused deep angst among investors. That performance is far from enticing as the country aims to further open up this market, the world's third largest, through initiatives such as the Bond Connect program. For now, foreign investors account for less than 2 percent of the onshore market, though it is likely to be included in major bond indexes in 2018. If that happens, foreigners' exposure may become mandatory.

So does this sell-off signal an investment opportunity? The answer is not yet, but things are starting to look more interesting. But neither is this sell-off the harbinger of a global bond bear market. It is primarily driven by financial deleveraging. The global bond bear market would start with signs of rising inflation pressure and hastened tightening from major central banks. So far, neither has occurred.