SHANGHAI, May 10 (Reuters) – Foreign investors resumed their net purchases of Chinese government bonds (CGBs) in April after an unusual drop in March, official data showed on Monday, as the yuan and premiums of yield on US debt increased.
CGB’s foreign holdings stood at a record 2,096 billion yuan ($ 326.14 billion) at the end of April, according to data from interbank market depository China Central Depository & Clearing Co (CCDC ), up 2.5% from the previous month.
Foreign holdings of quasi-sovereign bonds issued by Chinese political banks edged up 0.6% on the month to just over 1 trillion yuan for the first time, the data showed.
Additional monthly data on foreign investment in the Shanghai clearinghouse’s Chinese bonds – which typically accounts for more than 10% of all foreign holdings – was not yet available on Monday afternoon.
The surge in foreign investment in Chinese bonds comes a month after narrowing foreign debt spreads and a weaker yuan that saw investors cut their CGB positions for the first time in more than two years.
But in April, the Chinese yuan recorded its longest weekly winning streak against the US dollar since September, and the 10-year CGB’s spreads against their US counterpart widened by nearly 19 basis points in mid -month.
On Monday, the yuan hit three-and-a-half-month highs.
“I think everyone is betting on a weaker dollar, so CNY should benefit, and CGBs (have) become a currency game and a carry game,” said Tracy Chen, portfolio manager at Brandywine Global. Investment Management. Chen did not hedge exposure to CGBs and said she expects aggressive US stimulus measures to continue to weigh on the dollar.
Chinese sovereign bonds offer “a higher yield, but at the same time lack the volatility of emerging market bond markets,” Chen said. ($ 1 = 6.4267 Chinese yuan) (Reporting by Andrew Galbraith; Editing by Jacqueline Wong)