Home » Global funds sharply reduced their holdings of Chinese government bonds and fell to the top of the list | Morning Post

Global funds sharply reduced their holdings of Chinese government bonds and fell to the top of the list | Morning Post

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Global funds sharply reduced their holdings of Chinese government bonds and fell to the top of the list | Morning Post

Global funds have slashed their holdings of Chinese government bonds. Returns have fallen to the top of the list. China’s bond market performance has slipped from the top to the bottom half of the world in recent weeks, weakening its use as an alternative safe-haven asset amid turmoil in global markets caused by the Ukraine war. status.

According to data compiled by Bloomberg, excluding exchange rate factors, since the Russian invasion of Ukraine on February 24, the return on Chinese government bonds has fallen to 29th among 46 sovereign markets tracked by Bloomberg. In January of this year, due to the divergence of monetary policies between China and the United States, Chinese government bonds were regarded as a safe haven, and their rate of return ranked first in the world in January.

In a growing sign that investors are unwinding bets, multinational funds sold a net 35 billion yuan (S$7.561 billion) of Chinese government bonds last month, a record cut. Pimco downgraded its investment recommendation on Chinese sovereign bonds to neutral from overweight, as divergent U.S.-China monetary policy dents its yield advantage; AllianceBernstein warns Beijing may boost economy by issuing more bonds increase.

“China’s yields have failed to track lower U.S. Treasuries in global safe-haven trades,” wrote Jie Liu, head of China macro strategy at Standard Chartered Bank. “China’s stronger-than-expected GDP target this year “suggests that credit policy may be changing in the near term. More positive,” she wrote, adding that the 10-year yield could rise to 2.95% by the third quarter.

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The yield on the benchmark 10-year Treasury note has risen 15 basis points from a 20-month low of 2.83 percent hit in January, while the yield on the equivalent U.S. Treasury note is hovering at its lowest level since early 2022. China on Saturday announced an economic growth target of around 5.5 percent for 2022, at the top end of expectations by many economists, while raising fiscal spending to stimulate the economy.

At the same time, a growing number of investors see less room for monetary policy easing in the future given that China’s central bank has cut key lending rates and boosted liquidity. Investors have pushed Chinese government bonds higher since October as China turned to policy easing. China’s central bank said on Tuesday it would hand over more than 1 trillion yuan of surplus profits to the central government, a move that will help the government increase fiscal spending to stimulate the economy.

China Asset Management said in a report that the risks in the bond market outweigh the rewards. The fund doesn’t expect China’s central bank to cut interest rates or reserve ratios anytime soon, and expects 10-year yields to rise as high as 3 percent as credit supply increases, the report said.

Foreign investors last month sold net Chinese government bonds for the first time since March 2021, according to data compiled by Bloomberg. Data show that domestic funds, brokerages and commercial banks also reduced their holdings of Chinese bonds during the period. There has also been speculation that some of the selling may have come from Russia, as U.S. and European Union sanctions cut off the Russian central bank’s access to its massive foreign exchange reserves.

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“The general trend over the past few years has been for Chinese bonds to outperform the rest of the world,” said Peng Yisheng, portfolio manager at JPMorgan Asset Management. “However, in the face of market volatility triggered by recent geopolitical events, international bond investors have begun to turn to a more safe-haven direction. stance, favoring developed market bonds such as U.S. Treasuries.”

Goldman Sachs on Monday downgraded its assessment of Chinese government bonds, which could come under pressure if funds are unable to sell Russian assets and have to make up for it by selling other emerging-market assets. Investors in developing markets added a net $1.7 million to their holdings of Chinese bonds last week, according to exchange-traded fund flow data compiled by Bloomberg. By contrast, they added $16.2 million in Indonesian bonds and $13.7 million in Philippine bonds.

However, OCBC believes that Chinese bonds have diversification value. “On the private investor side, the lower correlation between renminbi interest rates and U.S. dollar interest rates may appeal to those looking to reduce their exposure to global shocks,” said Zhang Shuxian, a strategist at the bank.

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