Foreign investors cut Chinese bond holdings in April as the yuan weakened

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SHANGHAI – Foreign investors cut their holdings in Chinese yuan-denominated bonds for the third month in a row in April, the longest stretch on record, a sliding yuan and the evaporating yield of Chinese debt moved away from the application of premium instruments.

Investors outside China held a total of 3.77 trillion yuan ($ 558.77 billion) worth of Chinese bonds at the end of April, according to data released by China Central Depository and Clearing Co. (CCDC) and Shanghai Clearing House on Wednesday.

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It was 2.8% lower than a month ago.

Chinese bond holdings by offshore investors also fell 2.82% in March, the highest monthly drop since January 2017 and 1.97% in January.

A total of 2.39 trillion yuan worth of Chinese government bonds (CGBs) were held in April, down 1.7% from a month earlier and policy bank bonds worth 965 billion yuan.

This is the first time that foreign holdings of semi-sovereign bonds, which yield more than the CGB over the same period, and one of the most liquid instruments traded in China’s interbank bond market, have fallen below 1 trillion yuan since March last year.

The data was released on Tuesday after a long delay blamed for CCDC epidemic-related causes.

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The delay created market speculation that officials were trying to hide the outflow opportunities from China’s resources in a slow economy and rising U.S. yields weigh heavily on the yuan.

Data released last week by the International Institute of Finance (IIF) shows the largest quarterly capital outflows on record for China in the first quarter.

The yuan depreciated more than 4% against the dollar in April, while benchmark Chinese 10-year government bonds paid about 16 basis points lower than their U.S. counterparts on Wednesday, down from a premium of about 125 basis points at the end of 2021.

($ 1 = 6.7470 Chinese yuan) (Reporting by Andrew Galbraith; Editing by Muralikumar Anantraman and Kim Kogil)

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