China’s sovereign bonds have delivered strong returns, gaining nearly 10% over the past year for dollar-based investors, while global debt benchmarks lost 2.2% and U.S. Treasuries declined 2.1%. This outperformance persists despite China’s 10-year bond yield trading at a record discount to U.S. Treasuries, with the spread widening to 362 basis points this month. Fund managers cite a strong yuan and subdued domestic inflation as key drivers, noting the currency’s 4.4% gain against the dollar this year and its track for an eighth consecutive quarterly rise.
Lei Zhu of Fidelity International said overweighting yuan bonds has offered a good chance to outperform global indices, with growing global interest shifting from underweight to neutral positions. Maxence Visseau of Arkevium Capital highlighted that Chinese bonds have outpaced U.S. consumer price inflation since 2020, unlike most developed-market peers, making them a compelling momentum trade. Paula Chan of Manulife Investment Management added that China’s resilience to oil-price shocks and limited onshore fixed-income supply continue to support bond stability, with her fund betting on a flattening yield curve.
However, some remain cautious: Eric Liu of Alliance Bernstein noted low yields make Chinese government bonds less appealing, suggesting dim sum bonds may offer better premiums. Overseas holdings of Chinese debt stood at 2.03 trillion yuan ($303 billion) at end-August, little changed from the prior year and below the 2022 peak.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing