April 10, 2019 / 6:58 AM / 7 months ago

Offshore investors raised China bond holdings ahead of inclusion in major index

SHANGHAI, April 10 (Reuters) - Offshore investors raised their holdings of Chinese bonds traded on the country’s interbank market to a new record in March, official data showed, ahead of the phased inclusion of some Chinese bonds in a major global index.

Total offshore holdings of interbank market bonds reached 1.76 trillion yuan ($262.22 billion) by end-March, the most on record, according to Reuters’ calculations on data from the Shanghai Clearing House and China Central Depository and Clearing Co., China’s major bond clearing houses.

That was up 11.9 billion yuan from a month earlier.

Chinese treasury securities made up 1.09 trillion yuan, or about 62 percent of total holdings, an increase of 9.94 billion yuan from a month earlier.

In contrast, offshore holdings of bonds issued by China’s policy banks fell by 8.27 billion yuan from the previous month’s record high, to 371.38 billion yuan, Reuters’ calculations showed.

China’s policy banks disburse loans to support the government’s development initiatives.

Global index provider Bloomberg Barclays began adding Chinese government bonds and policy bank bonds to its Global Aggregate Index from April 1, in a phased 20-month process that is expected to draw billions of foreign dollars into China’s $13 trillion bond market, the world’s third-largest.

But the inclusion has been accompanied by a sell-off in Chinese bonds and pushed up the yield on benchmark 10-year government paper nearly 25 basis points since the beginning of April amid increasing market appetite for risk.

Refinitiv data showed the 10-year yield at 3.321 percent on Wednesday. ($1 = 6.7119 Chinese yuan) (Reporting by Andrew Galbraith Editing by Shri Navaratnam)

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