Foreign investors dump Chinese debt as US bonds become more attractive

  • Foreign investors sold a record $18 billion of Chinese debt in March, the Financial Times reported on Thursday.
  • Chinese debt has less appeal for foreign investors as rising US bond yields hold the potential for higher returns.
  • The US 10-year yield and the 30-year yield hit multi-year highs of nearly 3%.

Foreign investors sold a record amount of Chinese debt in March as the recent rise in US bond yields to multi-year highs made Treasuries more attractive, the The Financial Times reported Thusday.

Offshore investors sold 113 billion renminbi ($17.6 billion) of Chinese onshore bonds last month, according to the FT, which cited data from Hong Kong’s Bond Connect investment program. And in the past two months, sales totaled 193 billion renminbi, or $30 billion.

Debt has become less attractive to foreign investors as China’s economic growth darkens while its bonds lose their yield advantage over US bonds.

This week, the 10-year US Treasury yield hit nearly 3% for the first time since 2018, and the 30-year yield hit that same high for the first time since 2019. By comparison, the People’s Bank of China held on to the 10-year yield on Chinese bonds pegged at around 2.8% in recent sessions, the FT said.

US yields have surged this year as investors factor in expectations for the


Federal Reserve

to aggressively raise interest rates to control runaway inflation. Consumer inflation in March accelerated to 8.5% year-on-yearthe fastest rate since December 1981, when gasoline, food and housing prices rose.

Meanwhile, China’s central bank unexpectedly kept the one-year medium-term lending rate at 2.85% instead of cutting it, but still freed up $83 billion of liquidity for its banks as that the world’s second-largest economy is facing its slowest growth in three decades.

Beijing last month set an economic growth target of around 5.5% for 2022, the lowest rate since 1991. China’s economy has been strained by COVID outbreaks that have prompted lockdowns in Shanghai and other regions, including the manufacturing center of Shenzhen.

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