BEIJING – U.S. investors are among the many foreigners who want to make profits from China, particularly its bond market.
A clear area of interest is government bonds, where Chinese 10-year yields are above 3.2%. In contrast, the latest rise in US rates has pushed the ten-year Treasury yield to just 1.7%. This wide gap gives investors in Chinese government bonds a significantly higher return.
“U.S. investors remain very interested in investing in the Chinese market,” Tao Wang, head of Asian economics and chief Chinese economist at UBS, said Thursday during a webinar with the Institute of International Finance. “Especially from a bond market perspective, there is a structural increase in interest.”
While “China offers high and stable yields,” he noted that other countries continue to use growth-boosting measures that have resulted in negative yields for many bonds. This means that bond buyers will have to pay the issuer when the bond matures, rather than make money from it.
There were no specific data on U.S. investor investments, but investors outside mainland China had about 3.5 percent of yuan-denominated bond issues existing in late February, according to Reuters. Foreign holdings of Chinese government bonds reached about 10.6% of issues last month, Reuters said.
In just two years, foreign holdings of Chinese government bonds have nearly doubled to more than 2 trillion yuan ($ 307.7 billion), according to Wind Information.
The rise in interest comes as Chinese bonds were added to the major investment indices followed by global investors, prompting billions of dollars in Chinese debt purchases.
These purchases have grown in recent months for JP Morgan Asset Management’s Bond Opportunities Fund, according to the firm’s Asian fixed income portfolio manager Jason Pang.
“There’s no clear reason why we shouldn’t break away from this particular market,” he said. Pang noted that the Chinese economy is ahead of other countries when it comes to recovering from the coronavirus pandemic and said the likelihood that “China’s sales will be much higher is much lower than that of the rest of the world “.
As much as international interest in the Chinese bond market has grown, Pang said much of the investment is still in an “experiential phase,” as foreign investors still need to learn more about the mainland Chinese market.