China’s bond market has grown to become the world’s second largest1 thanks primarily to domestic investors. As Chinese assets are more represented in prominent global benchmarks for stocks and bonds, the next stage of their development should see more diverse ownership and a greater alignment with international standards.
Income-seeking investors should examine China bonds to provide potential diversification benefits and increased robustness to a global portfolio in this low-for-longer interest rate environment. China bonds, on the other hand, have smaller correlations to global risk assets and offer greater yields with reduced volatility. This is particularly critical during periods of high market volatility.
Is it possible to purchase Chinese government bonds?
The scheme was partially launched in January, allowing foreign investors to purchase Chinese bonds; however, southbound trade for mainland investors to purchase offshore bonds has yet to start.
Are foreigners allowed to purchase Chinese bonds?
Through the dollar-denominated Qualified Foreign Institutional Investor (QFII) and its yuan-denominated twin, RQFII, foreign institutional investors can gain access to China’s two main bond markets, the exchange bond and interbank markets.
In June, China abolished quotas for QFII and RQFII, allowing qualified foreign institutions to invest in Chinese stocks and bonds without restriction.
Through China Interbank Market (CIBM) Direct, some institutional investors, such as foreign central banks and monetary authorities, as well as sovereign wealth funds, can register for direct access to the interbank market.
Is it wise to invest in Chinese bonds?
“In fact, Chinese government bonds (CGBs) have recently outperformed some of the other government bonds. While everyone else is facing inflationary pressures, it may be a good opportunity to buy in CGBs if you have no exposure,” Chow added.
Is it possible to acquire Treasury bonds directly?
- Investors can buy Treasury bonds and bills directly from the US government through TreasuryDirect.
- TreasuryDirect does not allow the creation of IRAs or other tax-advantaged accounts.
- If investors want to sell bonds before they mature, they must move them from TreasuryDirect to banks or brokerages.
- ETFs, money market accounts, and the secondary market are some of the various options to buy treasuries.
- You can hold bonds purchased on the secondary market through a broker in an IRA or another tax-free retirement plan. You can do the same thing with ETFs.
What if China stops purchasing US debt?
If China (or any other country with a trade surplus with the United States) stops buying Treasurys or even starts selling its US FX reserves, its trade surplus would turn into a trade deficit, which no export-oriented economy wants since it will be worse off.
Are Chinese government bonds safe?
‘Higher Quality Growth’ is a phrase used to describe growth that is of higher quality. As the world’s second-largest bond market, Chinese debt serves as a “alternative safe haven” for Tracy Chen, a Philadelphia-based portfolio manager at Brandywine Global who purchased Chinese debt for the first time in 2020.
What is the size of China’s bond market?
The Chinese economy is a behemoth, and its bond market is a rising powerhouse. The Chinese bond market was the world’s second-largest by the end of 2020. Chinese bonds were worth approximately $19 trillion in total, accounting for 15% of the global bond market.
What makes China bonds attractive?
Due to its low correlation with other fixed income markets, Chinese bonds are a good diversifier for global fixed income investors. Because of the market’s strong local investor base and low percentage of international investors, domestic investors’ expectations and demand are a greater bond market driver.