China Traders Pile Into Carry Trades While Easy Money Lasts

(Bloomberg) — Easy liquidity conditions in China are fueling a lucrative carry trade in bonds, with traders betting the gains will be sustained despite signs the central bank is moving toward normalizing monetary policy.

China’s overnight borrowing rate in the interbank market dropped to 1.17% this week, the lowest since January 2021, widening the spread with the benchmark five-year note to the most in more than a year. The yield differential may hand investors a return of as much as 1.4%.