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Foreign holdings of Chinese govt bonds rise in Dec, up 70 pct in 2016
January 4, 2017 / 7:46 AM / a year ago

Foreign holdings of Chinese govt bonds rise in Dec, up 70 pct in 2016

SHANGHAI, Jan 4 (Reuters) - Foreign investors increased their stakes in China’s government bonds for a 14th straight month in December, and their holdings at the end of 2016 were 70 percent above the year-earlier level.

Overseas institutions raised their holdings by 6.9 billion yuan ($992.03 million) last month, bringing the total to 423.7 billion yuan, according to Reuters calculations based on data from the official bond clearing house.

At the end of 2015, foreign holdings of Chinese treasury bonds were 248.4 billion yuan.

Holdings of Chinese debt rose in 2016 “as authorities have eased the restrictions and welcome foreign capital flowing into the country,” said a Beijing-based trader at a Chinese bank.

Beijing opened up its interbank bond market to more types of foreign investors in February 2016 and relaxed foreign exchange repatriation rules in May.

Some traders said China’s official inclusion in the International Monetary Fund’s reserve basket, known as Special Drawing Rights, on Oct. 1 also boosted foreign interest.

Low-risk government bonds were among the favorites by overseas investors, who expanded their portfolios to purchase more government-backed Chinese policy bank bonds in December, according to data from the Central Depository and Clearing Co.

Foreign buying of policy bank bonds in December increased by 12.6 billion yuan from November, when it decreased 1.6 billion yuan from the previous month, official data showed.

Chinese policy bank bonds are issued by the China Development Bank, the Agricultural Development Bank of China, and the Export-Import Bank of China.


Overall, foreign institutions raised their holdings of all types of Chinese debt by 21.9 billion yuan in December to 778.85 billion yuan, data from the Central Depository and Clearing Co. showed.

For 2016, foreigners purchased 176.2 billion yuan of all types of Chinese bonds.

Some traders said the rapid increase in foreign holdings may not be sustainable this year as some were concerned that the government would unveil more measures to curb capital outflows.

The Chinese authorities rolled out policies over the past two months to tighten their grip on cross-border cash flow overseas after the yuan slid to 8-1/2 year lows.

A sliding yuan also dampened interest in yuan-denominated assets, but Chinese yields remained attractive compared with similar U.S. notes.

On Wednesday afternoon, the yield on China’s benchmark 10-year government bonds was 3.146 percent compared with around 2.47 percent for the U.S. notes.

$1 = 6.9554 Chinese yuan Reporting by Winni Zhou and John Ruwitch; Editing by Richard Borsuk

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