OVERSEAS demand for China’s onshore bonds grew at a slower pace in January, in a possible sign that appetite could wane as the nation’s yield premium shrinks.

Foreign institutional investors bought a net 66.3 billion yuan (US$10.4 billion) in Chinese securities in the interbank market last month, compared with 69.8 billion yuan in purchases in December, according to calculation based on Chinabond and Shanghai Clearing House data.

They boosted holdings of sovereign bonds and banks’ short term debt, while cutting positions in policy bank notes.

Chinese bonds have reeled in global funds in search of an alternative haven but some analysts warn that a shrinking yield premium could weaken demand. The yield advantage on China’s 10-year sovereign debt over comparable U.S. securities shrank to the least since 2019 last week following a selloff in Treasuries.

“Foreign investor purchases could stabilize at modest levels as rate differentials narrow,” Barclays Plc strategists including Ashish Agrawal and Lemon Zhang wrote in a note.

The buying momentum stalled further in February, with outflows from the belly of the curve likely reflecting some profit taking after a rally and a less supportive global backdrop, they wrote.

The yield gap on China’s 10-year sovereign bonds over similar-maturity Treasuries stood at 87 basis points Monday. It narrowed to 73 basis points last week, the least since 2019. (SD-Agencies)