Foreign holdings of Chinese bonds surge in September as policy eases

SHANGHAI, Oct. 11 (Reuters) – Global bond investors bought Chinese government bonds (CGBs) in September at the fastest pace since January before they were included in a major global index and as investors bet on easing policy to support slowing economic growth.

Offshore bondholders held CGBs worth 2.28 trillion yuan ($ 354.26 billion) at the end of September, according to data released this weekend by China Central Depository & Clearing Co.

It was a record high, up 3.5% from the previous month according to Reuters calculations, the largest percentage increase since January.

The rise comes despite concerns from global bondholders about possible contagion risks from a debt crisis at cash-strapped developer China Evergrande Group, which pushed Chinese yield spreads to their highest level ever. checked in.

Indeed, some investors see an advantage for Chinese sovereign debt as authorities take action to stabilize slowing growth and ease pressure on a weak housing market.

“I think the policy in China is way too strict. I think it’s going to tighten as people reassess credit risk in China and that’s why the economy is slowing down sharply, ”said Ariel Bezazel, head of bond strategy at Jupiter Asset Management.

“We think the yield curve will go down, and probably quite dramatically, as the Chinese authorities have to cut rates quite aggressively,” he said, adding that he “wouldn’t be surprised” if the Chinese yield fell below 2%. next year.

The yield on the Chinese 10-year benchmark bond stood at 2.905% on Monday.

This month will see the start of inclusion of CGBs here in the FTSE Russell WGBI Index, which could see large amounts of passive investments flowing into Chinese debt markets, although the Japanese government pensions (GPIF) said it would not invest in bonds.

$ 1 = 6.4360 Chinese yuan Report by Andrew Galbraith in Shanghai and Alun John in Hong Kong; Editing by Kim Coghill

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