Chart of the Day: Overseas Investors Make Record Net Purchases of Chinese Bonds

Overseas investors flocked to China’s bond market in July, making record net purchases of onshore bonds and marking the 20th consecutive month of net purchases.

Last month, the net inflow of overseas investment in onshore bonds, for which China Central Depository and Clearing Co. Ltd. (CCDC) provided custody services, reached about 148.1 billion yuan ($21.3 billion), the highest since the data set was made available in mid-2014, according to CCDC data (link in Chinese). CCDC is a state-owned company that provides depository and clearing services for the domestic bond market.

The Bond Connect program linking Hong Kong and the Chinese mainland also saw an influx of overseas investment. The program saw a record high monthly net inflow of 75.5 billion yuan in July.

The record net inflows of overseas investment were mainly due to a stronger yuan and a wider gap between yields of Chinese and U.S. bonds in general, analysts said.

China is moving to unify its fragmented $15.4 trillion bond market, the world’s second-largest, trying to enhance the market’s attractiveness for overseas investors. Last month, Chinese regulators announced that qualified investors on the interbank market and on the Shanghai and Shenzhen stock exchanges will be able to buy and sell bonds listed on both markets through a “connect” mechanism.

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China Moves to Unify Fragmented $15.4 Trillion Bond Market

Set up in 1997, the interbank bond market makes up the bulk of China’s overall bond market. As of the end of June, nearly 900 overseas institutional investors from over 60 countries and regions had entered the interbank bond market, according to official data (link in Chinese). They held about 2.6 trillion yuan of yuan-denominated bonds on the market, which was about 2.4% of all domestic bonds, while the treasury bonds they held accounted for about 9% of all treasury bonds, the data showed.

Contact reporter Timmy Shen (hongmingshen@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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