August 12, 2019 / 5:38 AM / 4 months ago

Foreign holdings of Chinese bonds top 2 trln yuan, driven by index inclusions

SHANGHAI, Aug 12 (Reuters) - Holdings of yuan-denominated bonds by offshore investors topped 2 trillion yuan for the first time in July, official data showed, as the inclusion of Chinese bonds in a major global index supported flows into the market.

Offshore investors held Chinese interbank market bonds worth a total of 2.02 trillion yuan ($286.04 billion) at the end of July, according to Reuters calculations using data from interbank market bond clearing houses China Central Depository and Clearing Co (CCDC) and Shanghai Clearing House.

Total holdings of Chinese government bonds by offshore investors stood at a record 1.17 trillion yuan at the end of July, the data showed.

Offshore investors also increased their holdings of bonds issued by China’s policy banks to a record high of 465.82 billion yuan, the data showed, up 40.4 billion from a month earlier.

Worries over a prolonged trade war between the United States and China have helped to drive Chinese bond prices to multi-year highs as investors seek products to hedge against the risk of a stock market collapse.

On Friday, the yield on 10-year Chinese government bonds touched 3.019%, according to Refinitiv data, its lowest level since Dec. 5, 2016. Bond yields move inversely to prices.

In April, the Bloomberg Barclays Global Aggregate Index began including Chinese government bonds and policy bank bonds, issued by China Development Bank, the Agricultural Development Bank of China and the Export-Import Bank of China. The 20-month phased inclusion of Chinese bonds will take China’s weight in the index to 6.03%.

Data released earlier this month from Bond Connect, which offers access to China’s onshore interbank market through Hong Kong, showed trading volumes hit a record high of 201 billion yuan in July, though daily turnover fell to 8.74 billion yuan from 9.06 billion yuan in June. ($1 = 7.0620 Chinese yuan) (Reporting by Andrew Galbraith; Editing by Sam Holmes)

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