Foreign investors made record net purchases of Chinese bonds traded under the country’s Bond Connect program in July, boosted by record yield premiums to US debt.
Net inflows into Chinese bonds through Bond Connect, which gives global investors access to the country’s onshore bond market through Hong Kong, totaled 75.5 billion yuan ($ 10.83 billion) in July, said Bond Connect Co. in a statement dated Friday.
Bond Connect Co. is a joint venture between the China Foreign Exchange Trade System (CFETS) and Hong Kong Exchanges and Clearing Ltd.
Total trade volume rose to 446.9 billion yuan in July, Bond Connect Co. said. It was up 5.9% from the previous month, but below the record high of 478.2 billion yuan in March, when the rapid international spread of the novel coronavirus led to a global flight to safety.
Spreads between benchmark Chinese 10-year government bonds and their U.S. counterparts hit a record high of more than 257 basis points in July, according to data from Refinitiv.
Analysts believe the widening of spreads reflects the divergent approaches of US and Chinese central banks. The Federal Reserve faces hopes of a weak economic rebound as China steadily recovers from the coronavirus crisis, allowing the People’s Bank of China (PBC) to shift from emergency mode to focus more on risks financial and reduce speculation.
The Fed on Wednesday kept interest rates near zero and pledged to continue pumping money into the economy as the COVID-19 pandemic wreaks havoc on business and consumer spending .