Highlights in the November report

Holdings of RMB-denominated bonds by offshore investors hit 2 trillion RMB for the first time in Q3, official data showed. Offshore investors held Chinese interbank market bonds worth a total of 2.12 trillion RMB ($296.54 billion) as of end-September. Offshore investors also held a record 1.24 trillion RMB of China government bonds as of end-September.

Despite macroeconomic headwinds, in July China’s regulators announced more liberalization measures to open up its financial markets. Out of the 11 broader strategic measures released by the State Council, three are directly related to further liberalization of the interbank bond market.

While policymakers continue to implement market liberalization measures, Chinese bond prices have reached multi-year highs in early September, while the yield on 10-year Chinese government bonds touched 3.1%, its lowest level since January 23, 2017. For this reason, many investors are increasingly interested in high-yield USD bonds from China. For new issuance in 2019, the Chinese high yield issuers have an average coupon of 8.5%, with some new issuances offering well over 10%.