China’s $33-B Bond Inflow No Cause For Glee

An abrupt surge in foreign buying of Chinese bonds has raised hopes that pessimism about the nation’s assets may be overdone.

Global investors boosted their holdings in the world’s second-biggest debt market by 251 billion yuan ($33 billion) last month.

But it may be too early to celebrate, as reported by Iris Ouyang and Marcus Wong for Bloomberg News.

Global investors boosted their holdings in the world’s second-biggest debt market by 251 billion yuan ($33 billion) last month, the second most on record according to China’s foreign exchange regulator.

The increase was nearly six times October’s amount and puts yuan bonds on track to reverse last year’s record outflows of 616 billion yuan.

“Chinese bonds are unlikely to outperform other global bonds as the scale of monetary easing in the next six months would be larger elsewhere than in China,” said Kiyong Seong, lead Asia macro strategist at Societe Generale SA in Hong Kong.

“I wouldn’t think it is sustainable.” Foreign bond inflows were seen across Asia in November, suggesting that China also benefited from the broader trend, Seong added.

The surprise acceleration in inflows resulted more from a global bond rally as traders bet on an early and more aggressive switch to monetary easing by the Federal Reserve, with demand also emerging from passively managed index-tracking funds.

The momentum may slow, given Beijing’s constraints and lack of intention to loosen policy significantly, increased wariness of China’s long-term debt woes, and the stronger appeal of cheaper emerging-market assets.

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