Chinese Government Bonds - A High Yield Market In A Low Yield World
Published Aug 13, 2020 on Seeking Alpha

Seeking AlphaToday's Market | Market OutlookChinese Government Bonds - A High Yield Market In A Low Yield WorldAug. 13, 2020 10:20 AM ET|| Includes: AFTY, ASHR, ASHS, ASHX, CAF, CBON, CHAD, CHAU, CHIE, CHIH, CHII, CHIK, CHIL, CHIM, CHIQ, CHIR, CHIS, CHIU, CHIX, CHN, CN, CNXT, CNY, CNYA, CQQQ, CWEB, CXSE, CYB, ECNS, EWH, FCA, FHK, FLCH, FLHK, FXI, FXP, GXC, KALL, KBA, KCNY, KESG, KFYP, KGRN, KURE, KWEB, MCHI, OBOR, PGJ, TDF, XPP, YANG, YINN, YXI, ZHOKby: FTSE RussellFTSE Russell EquityFTSE Russell.cls-1{fill:#024999;}SummaryAlongside the recent collapse in G7 bond yields, as the COVID-19 crisis has developed, Chinese government bond yields have backed up in recent months, reflecting PBOC caution in cutting interest rates.
Low foreign ownership of Chinese financial assets has had important consequences for the profile of index returns and behavior of Chinese government bond yields.
Improved access after recent reforms, the sheer size of the Chinese govt bond market, the trend towards inclusion in global bond indexes, high relative yields, and portfolio diversification benefits may all be contributing to increasing foreign investor flows into Chinese govt. bonds, which reached $20bn in July alone.
By Robin Marshall, director of fixed income
Alongside the recent collapse in G7 bond yields, as the COVID-19 crisis has developed, Chinese government bond yields have backed up in recent months, reflecting PBOC caution in cutting interest rates. Despite the growth in the Chinese government bond market since the GFC, the market still has a very low level of foreign participation, at less than 10%, as Chart 1 shows. This compares with more typical foreign ownership levels around 30% in developed markets like UK gilts. But even in a number of EMs, like South Africa, foreign ownership is significantly higher at 30.1% (National Treasury Data, July 2020). The slow pace of financial reforms, lack of renminbi convertibility, and restricted liberalization of China's capital... Read more