FOREIGNERS are buying Chinese bonds like never before even though domestic investors keep dumping the notes.

Overseas funds boosted their holdings of Chinese sovereign debt by a record 439 billion yuan (US$66 billion) last quarter. With a 10-year yield at 3.19 percent, the securities are attractive to foreign traders at a time when US$16 trillion in the world’s debt yields less than zero.

Foreigners are buying yuan bonds because for one, they are denominated in a currency that just jumped to the strongest since July 2018. Also, they will see long-term support due to passive capital inflows, as FTSE Russell last month followed JPMorgan Chase & Co. and Bloomberg Barclays to include them into its flagship indexes.

Meanwhile in China — where investment decisions are unaffected by the strength of the yuan — traders are more concerned that the government will become less willing to ease monetary policy amid a strong growth recovery from the virus pandemic.

Some key economic data for September, including retail sales and industrial production, exceeded economists’ expectations. That means it’s less likely for the authorities to reduce borrowing costs, typically bad news for bonds.

The lack of easing will hurt bonds. The People’s Bank of China offered lenders less medium-term loans in October compared with the previous two months, suggesting the government is cautious with cash injections. (SD-Agencies)