June 5, 2017 / 9:06 AM / 3 months ago

Foreign investors increase Chinese debt holdings in May

FILE PHOTO: A staff member walks in front of the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing, June 25, 2013.Jason Lee/File Photo

SHANGHAI (Reuters) - Foreign investors increased their holdings of Chinese government bonds for the third straight month in May, official data showed, but remained unmoved by the formal approval of a scheme to improve access to the country's bond market.

Overseas investors' holdings of Chinese treasury bonds rose 5.06 billion yuan ($743.9 million) in May, raising total holdings to 429 billion yuan, according to Reuters calculations based on data from China Central Depository and Clearing Co (CCDC), the official bond clearing house.

Foreign investors increased their holdings of all types of Chinese debt by 2.3 billion yuan in May to 774.6 billion yuan. Foreign holdings of Chinese debt have decreased by 4.2 billion yuan since the beginning of the year.

The data appear to show little impact on foreign investors from the formal approval on May 16 of a long-awaited "Bond Connect" program to allow foreign investors to participate in China's bond market more easily.

The notice of approval by Hong Kong and Chinese regulators said that trading would commence with "northbound" trading only, meaning that only foreign and Hong Kong investors would be able to trade in Chinese bonds initially. It said that the launch date of the scheme would be unveiled later.

A trader at a state-owned bank in Shanghai said it was unlikely that the news of the bond connect had influenced trading flows in May. "The decrease in the year to date may be because of the bond bear market on top of expectations of renminbi depreciation," he said.

China's bond market was worth 66.9 trillion yuan, or about $9.8 trillion, at the end of April, the People's Bank of China reported.

Yields on benchmark 10-year Chinese government bonds were at 3.649 percent on Monday, nearly 99 basis points higher than lows hit in late October 2016. Bond yields move inversely to prices.

The People's Bank of China (PBOC) has recently taken steps to lessen expectations that country's currency, the yuan, would depreciate. On May 26, the central bank said it would introduce a "counter-cyclical factor", which it has not yet publicly defined, in its calculation of the yuan's daily midpoint fixing to lessen possible "herd effects" in the foreign exchange market.

The PBOC set its daily midpoint for the yuan at a near seven-month high of 6.7935 on Monday, guiding the currency higher. Market participants saw an unexpected jump in the midpoint fixing on Thursday last week as in part motivated by the bank's resolve to counter depreciation expectations.

Reporting by Andrew Galbraith; Editing by Nick Macfie

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