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Anzo Lim

Overseas Institutions Increase Holding of RMB Bonds in November

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Although the US bond yields went up markedly due to the Feds holding of interest rate in November, overseas capital remains enthusiastic about stepping up holding of RMB bonds. In November 2019, overseas institutional investors net bond purchase in the interbank bond market amounted 98.8 billion yuan. This means that overseas institutions cumulatively bought more than 970 billion yuan of bonds in the first 11 months of this year, and the figure will most certainly break the trillion mark before 2019 ends.

 

Overseas institutions continued to significantly increase Renminbi bond-holding in November partly because they believe that the recovery in US bond yields is only temporary. As the Fed is expected to resume rate slash in the first half of 2020, the Renminbis spread advantage will become even more obvious, so right now is a great time for bottom-fishing. On the other hand, many overseas institutions find that the proportion of RMB bonds theyre holding is far below the ideal level, so they take full advantage of policy bonus, such as cancellation of investment quota limits for QFII/RQFII and rules allowing non-transacting transfer of bonds under the same overseas entity QFII/RQFII and direct entry channels, to increase their holding of Renminbi bonds.

 

The surge in overseas institutions purchase of RMB bonds suggests their trading strategies have become more diversified. In the past, overseas institutions mainly profit from buying at a low price and selling when the price goes up. Now they are holding bonds through Bond Connect while buying financial derivatives overseas to carry out hedging or arbitrage. Overseas institutions are willing to step up holding of RMB bonds in November possibly because the want to be more prepared for Federal Reserves interest rate cut in the first half of 2020.

Edited by Anzo Lim
 

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