Emerging market investors are betting that a bull run in China’s bond markets has further to go, even as Beijing signals increasing discomfort with a soaring rally in government debt.
China’s central bank has been trying to cool a frenzy for long-term government bonds this year driven by local investors who have pushed yields down to about 2 per cent, a response to faltering consumer demand in the world’s second-biggest economy.
While foreign investors have cut their direct holdings of Chinese government bonds in recent months, they have instead ploughed into short-term debt issued by Chinese banks and used currency trades to boost overall yields to rates above US Treasuries, in US dollar terms.
“From a macro, fundamental perspective, there is still a lot of support for yields to go lower,” said Mark Evans, an analyst in Asian bonds and currencies at asset manager Ninety One….
