Fear of Missing Out China Bond

In a yield-starved world, the country’s government bonds offer the richest income in comparison to other developed debt markets, said Alex Etra, a senior strategist at Exante Data.

Even as the Federal Reserve cut interest rates to rock-bottom this year, the People’s Bank of China only trimmed its benchmark loan prime rate to 3.85% from 4.15% at the start of 2020.

The FTSE China government bond index has returned an annual 4.2% in the last 12 months as of July 31, compared with a 3.7% return for the J.P. Morgan’s flagship dollar-denominated emerging market bond index EMB, -0.22% over the same stretch.

Foreign inflows to Chinese bonds reached an all-time high in the second quarter of $33.5 billion. And in July, inflows reached $20 billion alone, its highest month on record, according to Exante Data, which tracks the movement of capital across the world, as shown:

Chinese bonds now represent 5.3% of the Bloomberg Global Aggregate Bond Index and 9.4% for JP Morgan’s emerging market bond index.

Jonathan Orr, a portfolio manager at Goldman Sachs Asset Management, cited estimates that another $250 billion of inflows could arrive into China’s bond market due to their recent inclusion into the three major indexes provided by JP Morgan, FTSE Russell and Bloomberg.

Reference:

MarketWatch, 2020-08-13, “Investors Flock to China’s Bond Market, Spurred by Fears of Missing Out”