Foreigners snapped up China government bonds in September as yuan steadied

10/09/2019 | 06:47am

SHANGHAI (Reuters) - Foreigners bought Chinese government bonds at the fastest monthly pace in more than a year in September as the yuan stabilised, official data showed on Wednesday, highlighting robust demand amid the bonds' addition to global indexes.

Offshore investors held Chinese government bonds worth a total of 1.24 trillion yuan ($174.1 billion) at the end of September, according to data from the China Central Depository and Clearing Co., the country's main interbank market clearing house.

The total is a record high. It is also up 4.5% from a month earlier, the fastest monthly rise in percentage terms since August 2018, according to Reuters' calculations.

Foreigners bought a net 110.8 billion yuan of Chinese bonds last month, the China Foreign Exchange Trade System (CFETS) said in a post on its official WeChat account late on Tuesday.

That was a jump from net purchases of 69.9 billion yuan in August, when China's yuan posted its biggest monthly tumble against the U.S. dollar amid trade tensions with the United States and a slowing domestic economy.

The yuan <CNY=CFXS> regained its footing in September, rising about 0.1% against the dollar.

CFETS did not give a breakdown of the bond purchases by country. But it said 48% of trading volume came from overseas commercial banks, 19% from overseas central banks and related institutions, and 17% from overseas funds.

Foreign flows into China have been supported by the 20-month phased inclusion of Chinese government and policy-bank bonds in the Bloomberg Barclays Global Aggregate Index, which began in April. JPMorgan said in September that it would add Chinese government bonds to its emerging market local currency bond index from February 2020.

But index provider FTSE Russell subsequently declined to add China to its widely tracked World Government Bond Index (WGBI), citing problems including scant trading activity and long settlement cycles.

At the end of August, foreign investors held onshore Chinese bonds worth a total of 2.03 trillion yuan, according to Reuters' calculations using data from China Central Depository and Clearing Co. and the Shanghai Clearing House, the country's interbank market clearing houses.

Additional interbank market data for September was not yet available from the Shanghai Clearing House on Wednesday evening.

(Reporting by Andrew Galbraith; Editing by Kim Coghill and Toby Chopra)

© Thomson Reuters 2020
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