FTSE Russell China Bond Research Report Q4 2018

|
Includes: CBON, CHN, CN, CXSE, DSUM, FCA, FLCH, FXP, GXC, KCNY, KGRN, PGJ, TDF, WCHN, XPP, YANG, YAO, YINN, YXI
by: FTSE Russell
Summary

Growth projections for China’s bond market remain strong even as the RMB weakens amid trade tensions.

International appetite for CGBs is increasing in line with continued market reforms in China. China’s regulators also continue to play the long game and issue a raft of new policies to draw more international investors into the market.

Looking ahead into 2019, so-called "safe haven" assets could remain in focus due to trade tensions and slowing macroeconomic growth.

The yield of onshore 5-year Sovereign bonds was at 2.98% and the yield of offshore 5-year Sovereign bonds was at 3.80% as of the end of Q4.

Highlights from the February report

  • China’s US$12 trillion bond market is projected to double in size in the next four years to about US$24 trillion, according to Goldman Sachs. Chinese Government Bonds (CGBs) are forecast to account for an estimated US$4 trillion of that market by the end of 2022
  • Despite growth in its bond market, China’s currency - the renminbi (RMB) - is depreciating on the back of trade tensions and slower macroeconomic growth. The RMB hit a 10-year low in late October 2018; and the interest rate gap between China and the US narrowed due in part to the Federal Reserve’s tightening policies
  • Meanwhile, yields on sovereign debt continue to fall in China at a time when yields on similar debt of many other major economies are rising due to an uncertain outlook for the global economy. As of end-2018, the yield on China’s 10-year sovereign notes had tumbled 63bps since the beginning of last year.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.