OVERSEAS investors reduced holdings of Chinese bonds for a fourth consecutive month in May, and at the fastest rate in nearly five-and-a-half years, as diverging monetary policy kept Chinese yields pinned below their U.S. counterparts.

Foreign holdings of yuan bonds traded on China’s interbank bond market reached 3.66 trillion yuan (US$546.54 billion) at the end of May, according to calculations on data from depository institutions China Central Depository & Clearing Co. and the Shanghai Clearing House.

That was down 2.9% from a month earlier, the biggest monthly decrease since January 2017. It was also down 0.5% from the end of May 2021, the first year-on-year decrease since 2016, according to data from the People’s Bank of China (PBOC).

Offshore investors held 2.38 trillion yuan worth of Chinese government bonds at the end of May, down 0.6% from a month earlier. Holdings of quasi-sovereign policy bank bonds fell faster, dropping 7.7% from a month earlier and 11.7% year on year to 889.9 billion yuan.

“With the desynchronized monetary policy between the United States and China, foreign investors continued to offload Chinese bonds due to wider divergence in yields and a weaker yuan,” said Gary Ng, Asia Pacific senior economist at Natixis in Hong Kong.

“The turn of the global monetary tide may continue to drive capital outflows in Chinese bonds.”

The U.S. Federal Reserve on Wednesday announced its biggest rate hike since 1994, lifting the target federal funds rate by three-quarters of a percentage point and forecasting further rises, as it attempts to curb surging inflation. (SD-Agencies)