Global investor interest in Chinese bonds soared to new heights in 2020. According to the research data analyzed and published by Stock Apps, foreign holdings in Chinese interbank bonds reached 3.25 trillion yuan ($502 billion) at the end of 2020. Compared to 2019, that was a 48.8% increase year-over-year (YoY) and it was the first time the figure had surpassed $500 billion.
A report from China’s central bank states that the country’s bond market was worth 115.7 trillion yuan ($17.9 trillion) at the end of November 2020. Foreign holdings account for a 2.7% share of this market, nearly triple the 1.55% share it held at the end of 2017.
China’s Bonds Yield Recovers to 3% vs. 1% for US Treasuries
During the year 2020, foreign investments in Chinese government bonds (CGBs) shot up by 44% to 1.88 trillion yuan ($290 billion). Quasi-sovereign policy bonds skyrocketed by 84.4% YoY, reaching a record high of 919.18 billion yuan ($142 billion).
The relatively high yield of Chinese bonds is among the factors driving their popularity. According to Refinitiv, the spread of the 10-year CGB yield was almost 260 basis points above that of 10-year US Treasuries in July 2020. As of January 7, 2021, they were still above 200 basis points.
US Treasury yield fell from 1.9% in December 2019 to a low of 0.54% in March 2020. At the end of December 2020, it had rebounded to slightly more than 1%.
On the other hand, the 10-year CGB fell from a yield of 3.2% in December 2019 to a low of 2.48% in April 2020. By the end of December 2020, it had almost fully recovered to 3.15%.
Another reason for the Chinese bonds popularity is investor confidence in the Chinese economy. According to World Bank, China’s GDP is set to grow at 7.9% in 2021 compared to 3.5% for the US and 4% for the global economy.