Bonds News

Foreign holdings of Chinese bonds jump in September as policy easing seen

SHANGHAI, Oct 11 (Reuters) - Global bond investors bought Chinese government bonds (CGBs) in September at the fastest pace since January ahead of their inclusion in a major global index and as investors raised bets for policy easing to support slowing economic growth.

Offshore bondholders held CGBs worth 2.28 trillion yuan ($354.26 billion) at the end of September, according to data released on the weekend by China Central Depository & Clearing Co.

That was a record, and up 3.5% from a month earlier according to Reuters calculations, the biggest percentage increase since January.

The rise comes despite concern among global bondholders of possible contagion risks from a debt crisis at cash-strapped developer China Evergrande Group that has driven Chinese high-yield spreads to their widest level on record.

Indeed, some investors see an upside for Chinese sovereign debt as authorities take steps to stabilise slowing growth and ease pressure on a weak real estate market.

“I think policy in China is way too tight. I think it will get tighter as people reassess credit risk in China and that’s why the economy is slowing down sharply,” said Ariel Bezazel, head of fixed income strategy at Jupiter Asset Management.

“We think that the yield curve will shift down, and probably shift down quite dramatically as the Chinese authorities have to cut rates pretty aggressively,” he said, adding that he “wouldn’t be surprised” if the Chinese yield dipped below 2% in the next year.

The yield on China’s benchmark 10-year bond stood at 2.905% on Monday.

This month will see the start of the inclusion of CGBs here in the FTSE Russell WGBI index, which could see large amounts of passive investments flow into China's debt markets, though Japan's Government Pension Investment Fund (GPIF) has said it will not invest in the bonds.

$1 = 6.4360 Chinese yuan Reporting by Andrew Galbraith in Shanghai and Alun John in Hong Kong; Editing by Kim Coghill