Foreign investors lured to high-yielding Chinese bank debt

Reuters

Mon, Mar 17, 2025, 3:21 AM 2 min read

SHANGHAI/SINGAPORE (Reuters) - Foreign investors are rushing into Chinese interbank indebtedness instruments arsenic mainland yields rise, seeking to exploit the vantage of favourable currency conversion rates and the refuge offered by the market's debased correlation with the remainder the world.

U.S. dollar investors successful peculiar are snapping up negotiable certificates of deposit (NCDs) -- fashionable short-term indebtedness instruments issued betwixt banks for their financing needs -- arsenic the hedged instrumentality connected these exceeds that connected U.S. Treasuries.

WHY IT'S IMPORTANT

Foreign investors person not accrued holdings of Chinese authorities bonds since September 2024 aft a twelvemonth of accordant purchases arsenic the yuan weakened and the transportation commercialized turned little attractive.

But they person accrued holdings of NCDs since December, signalling a flimsy crook successful superior flows into China and providing the yuan a buffer arsenic a Sino-U.S. commercialized warfare simmers.

BY THE NUMBERS

Foreign investors held 1.14 trillion yuan ($157.51 billion)worth of NCDs astatine the extremity of February, the highest connected grounds and marking the 3rd consecutive period of buying.

The output connected one-year NCDs has jumped astir 40 ground points (bps) this twelvemonth to astir 2%, portion 10-year sovereign yields roseate 20 bps to 1.89%.

Dollar investors besides gain 2.8% erstwhile they swap their currency into yuan, which means NCD investments gain 4.8% versus conscionable astir 4% connected one-year Treasuries.

QUOTES

"Global investors are trying to question thing that is precise decorrelated... The terms enactment is wholly antithetic to the remainder of the world. That mindset attracts immoderate of the travel backmost to China," said Cary Yeung, caput of greater China indebtedness astatine Pictet Asset Management.

Rising section yields, a favourable hedging environment, and the imaginable of U.S. involvement complaint cuts render Chinese bonds charismatic for investors, said Wei Li, caput of China multi-asset investments astatine BNP Paribas.

($1 = 7.2378 Chinese yuan renminbi)

(Reporting by Li Gu successful Shanghai and Ankur Banerjee successful Singapore; Editing by Vidya Ranganathan and Leroy Leo)