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Foreign holdings of Chinese debt up for 4th straight month in June
July 7, 2017 / 7:38 AM / 5 months ago

Foreign holdings of Chinese debt up for 4th straight month in June

SHANGHAI, July 7 (Reuters) - Foreign investors increased their holdings of Chinese bonds for a fourth consecutive month in June, official data showed, as comparatively high yields and central bank efforts to stabilise the currency bolstered local debt appeal.

Overseas investors’ holdings of Chinese treasury bonds rose 20 billion yuan ($2.94 billion) in June, bringing their total holdings of the securities to 449 billion yuan, according to Reuters’ calculations based on data from China Central Depository and Clearing Co (CCDC), the official bond clearing house.

Foreign investors increased their holdings of all types of Chinese debt by 29.1 billion yuan in June to 803.7 billion yuan. The purchases mean foreign holdings of Chinese debt increased 24.8 billion yuan from January through the end of June, compared with a net decrease of 4.2 billion yuan through the end of May.

Market watchers say that relatively high yields on Chinese government bonds and moves by the People’s Bank of China (PBOC) to reduce expectations of yuan depreciation make the onshore market increasingly attractive to foreign investors.

“On the currency side, we are getting more constructive,” said Pheona Tsang, head of fixed income at BEA Union Investment Management, highlighting the PBOC’s introduction in late May of a “counter-cyclical” factor to determine the yuan’s daily fixing.

“Besides this, I think the fundamental factors are also more constructive. We see the slowing of capital outflows as well as fading U.S. dollar strength.”

Yields on benchmark 10-year Chinese government bonds were at 3.592 percent on Monday, up 93 basis points from lows hit in late October 2016, but down 11 basis points from recent highs in May.

The yuan rose 2.4 percent against the U.S. dollar in the first half of 2017.

The increase in foreign bond holdings in June comes as China takes steps to internationalise its debt market. Earlier this week, its Bond Connect programme launched its initial “Northbound” phase, which allows overseas participants to invest in China’s onshore bond market. ($1 = 6.8017 Chinese yuan) (Reporting by Andrew Galbraith; Editing by Sam Holmes)

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