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Foreigners lift Chinese government bond holdings for first time since Jan

Foreigners lift Chinese government bond holdings for first time since Jan

FILE PHOTO: An employee counts Chinese 100 yuan banknotes at a branch of China Merchants Bank in Hefei, Anhui province June 21, 2013. REUTERS/Stringer

SHANGHAI :Overseas investors increased their holdings of Chinese government bonds last month for first time since January, official data showed, although their total holdings of Chinese debt declined for the sixth consecutive month.

Foreign holdings of yuan bonds traded on China's interbank market stood at 3.51 trillion yuan ($520 billion) at the end of July, down from 3.57 trillion yuan a month earlier, the People's Bank of China (PBOC) said on Monday.

However, foreign holdings of Chinese government bonds edged up by 3.3 billion yuan, ending five straight months of net selling.

Foreigners also slowed the pace of selling other Chinese bonds last month, according to data from depository institution China Central Depository & Clearing Co.

Overseas institutional investors sold a total of 28.1 billion yuan worth of interbank bonds in July from a month earlier, compared with an outflow of 95 billion yuan in June, bringing the total reduction in the last six months to 472.6 billion yuan, CCDC data showed.

China's $20 trillion bond market has suffered foreign outflows since February, as divergent monetary policy has wiped out China's yield advantage over the United States, while rising geopolitical tensions and fresh COVID-19 outbreaks in China have also dampened investor appetite.

But some traders and analysts said Chinese bonds could become popular again as the Federal Reserve may slow its pace of monetary tightening after U.S. inflation showed some signs of cooling.

"If the yield gap between China and the United States does not widen significantly in the remainder of this year, foreign capitals could flow back," said Marco Sun, chief financial market analyst at MUFG Bank.

Foreign holdings of Chinese bonds more than tripled from 2019 to 2021, but remain relatively small, accounting for 2.91 per cent of the interbank debt market, according to Monday's data.

Their holdings are concentrated in government bonds and quasi-sovereign policy bank bonds.

Source: Reuters

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