Overseas Investors Increase Positions in Chinese Treasuries Before Bloomberg Barclays Index Addition
She Qingqi
/SOURCE : Yicai
Overseas Investors Increase Positions in Chinese Treasuries Before Bloomberg Barclays Index Addition

(Yicai Global) June 8 -- Overseas institutions have increased their investments in Chinese government bonds for the 16th consecutive month to CNY838.9 billion (USD131 billion) in May, showing growing international interest in the opening up of the world's third-largest bond market.

The proportion of offshore institutional holdings in the Chinese treasuries rose to 6.74 percent last year from 3.88 percent, and the positions increased 70 percent from the year before, said the China Government Securities Depository Trust and Clearing, the official source for bond data.

The attractiveness of yuan-denominated assets has increased on the back of opening more channels for overseas institutions to access investment opportunities in China's mainland and the central bank's promise to enhance operations in the bond market by April next year. The Chinese currency's appreciation against a basket of currencies also helps to draw some funds from Europe and emerging economies.

Bloomberg announced on March 21 that it plans to include yuan-denominated government and policy bank bonds in the Bloomberg Barclays Global Aggregate Index starting in April next year, after the country will push operational enhancements in the sector. Some 386 Chinese bonds will be phased in during a 20-month period, finally accounting for 5.49 percent of the index's market value of USD53.73 trillion, as for data from January shows.

Some USD3 trillion worth of global assets is tracking the Barclays Global Index, according to data from United Nations-backed CIB research institute. This means that the suggested 5.49 percent rate will result in capital inflows of USD164.7 billion. If the bonds are phased in with a scaling factor of 5 percent per month, the inflows will increase to USD74.1 billion next year and to USD90.6 billion in 2020. Full inclusion of China's bond index in global bond indexes could bring USD286 billion in passive inflows, according to data from Standard Chartered Bank.

China's bond market is the third-largest in the world, behind only the United States and Japan, and thus too large for foreign investors to ignore, Lou Chao, manager from the Shanghai unit of UBS Asset Management told Yicai Global. As investors have played in the debt securities markets of the United States and Japan for so long, there is a need for a new bond market to underpin business growth and diversity, Lou added. 

Editor: Emmi Laine

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Keywords: Bonds , Foreign Investors , Qfii , Debt Securities Market , IMF , SDR , Bloomberg Barclays Global Aggregate Index , Financial Reform , China Treasury Bonds