BEIJING: China’s Ministry of Finance (MOF) issued $6 billion worth of sovereign bonds into Hong Kong Special Administrative Region on October 14, with subscriptions by international investors reaching 4.7 times the volume issued by the time the dollar-denominated bonds were released at a premium. According to data from China Central Depository & Clearing Co., Ltd. (CCDC), holdings of Chinese sovereign bonds by overseas institutions have grown continuously for the last 23 months, now totaling $370 billion. This figure is up by 38.5 percent compared with the end of 2019.
FTSE Russell, the world’s second largest index service provider, has revealed that China’s sovereign bonds will be included in FTSE GBWI from October 2021. In February and April 2020, China’s treasury bonds were included by J.P. Morgan Government Bond Index-Emerging Markets (GBI-EM) and Bloomberg Barclays Global Aggregate Index.
Amid escalating China-U.S. trade frictions as well as Western politicians’ bombardments of the Chinese economy, why are international investors still so interested in China’s sovereign bonds?
The major reason for the enthusiasm is the high yield of China’s sovereign debts, as capital is always chasing profit. A deeper analysis, however, reveals that high yields do not offer a full explanation for foreign investors’ enthusiasm. As far as institutional investors are concerned, security of their capital comes ahead of yields and no matter how high a potential yield is, a lack of security is a strong disincentive for investors.
Overseas investors’ rush to China’s sovereign bonds is fueled not only by a relatively high bond yield, but also China’s robust economic rebound. This is a decision based on investors’ careful comparison of different bonds and an analysis of investment information from various channels.
China’s bond yields are not only rising faster than any others’, in the first half of 2020 they also stood out as premium assets on the global market.
– The Daily Mail-Beijing Review News exchange item
