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 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 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.
How do you go about purchasing foreign bonds?
Investors who have an account that allows international trading can buy foreign bonds in the same manner they buy US bonds. Their broker supplies clients with a list of available bonds, which they can purchase at market price. However, transaction costs may be greater, and the bond selection may be limited compared to domestic issues in the investment country. Buying dollar-denominated or U.S.-based foreign bonds is one option. A foreign corporation may occasionally issue a bond in the United States that is valued in dollars. These so-called “Yankee bonds” provide exposure to a foreign corporation while also allowing for the purchase of a dollar-based bond in the United States. Companies can also issue bonds that are valued in dollars but are not issued in the United States; these are known as Eurodollar bonds.
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 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.
How much does the United States owe China?
Ownership of US Debt is Broken Down China owns around $1.1 trillion in US debt, which is somewhat more than Japan. Whether you’re an American retiree or a Chinese bank, you should consider investing in American debt. The Chinese yuan is pegged to the US dollar, as are the currencies of many other countries.