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Foreigners lift China sovereign bond holdings to record in April

SHANGHAI, May 10 (Reuters) - Overseas investors resumed net purchases of Chinese government bonds (CGBs) in April following an unusual drop in March, official data showed on Monday, as the yuan currency and yield premiums over U.S. debt rose.

Foreign holdings of CGBs stood at a record 2.096 trillion yuan ($326.14 billion) at the end of April, data from interbank market depository China Central Depository & Clearing Co (CCDC) showed, up 2.5% from the previous month.

Foreign holdings of quasi-sovereign bonds issued by China’s policy 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 Chinese bonds from Shanghai Clearing House -- which typically accounts for more than 10% of all foreign holdings -- was not yet available on Monday afternoon.

The rise in foreign investment in Chinese bonds comes a month after narrowing spreads over overseas debt and a weaker yuan saw investors trim their CGB positions for the first time in more than two years.

But in April, China’s yuan logged its longest weekly winning streak against the U.S. dollar since September, and spreads of 10-year CGBs over their U.S. counterpart widened by as much as 19 basis points by mid-month.

On Monday, the yuan touched three-and-a-half-month highs.

“I think everyone is betting on a weaker dollar, so the CNY should benefit, and CGBs (have) become a currency play and a carry play,” said Tracy Chen, portfolio manager at Brandywine Global Investment Management. Chen has unhedged exposure to CGBs and said she expects aggressive U.S. stimulus to continue to weigh on the dollar.

Chinese sovereign bonds offer “higher yield, but at the same time don’t have the volatility of emerging market bond markets,” Chen said. ($1 = 6.4267 Chinese yuan) (Reporting by Andrew Galbraith; Editing by Jacqueline Wong)

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