Chinese government bonds increase for first time since January

Official data shows that the holdings of Chinese government bonds increased for the first time since January, although their total holdings of Chinese debt declined for the sixth consecutive month.

The Foreign holdings of yuan bonds traded on China's interbank market stood at 3.51 trillion yuan $520 billion at the end of July, down from 3.57 trillion yuan a month earlier, the People's Bank of China said on Monday.

Foreign holdings of Chinese government bonds increased by 3.3 billion yuan, ending five straight months of net selling.

According to data from the China Central Depository Clearing Co., foreigners slowed the pace of selling other Chinese bonds last month.

In July, the total reduction in the last six months was 472.6 billion yuan compared to the previous month's outflow of 95 billion yuan in June, according to the data from the Overseas institutional investors.

Since February, China's $20 trillion bond market has suffered foreign outflows due to divergent monetary policy that has wiped out China's yield advantage over the United States, while rising geopolitical tensions and fresh COVID 19 outbreaks in China have dampened investor appetite.

After U.S. inflation showed signs of cooling, some traders and analysts said that Chinese bonds could become popular again as the Federal Reserve may slow its pace of monetary tightening.

Foreign capitals could flow back if the yield gap between China and the United States doesn't widen in the rest of the year, according to Marco Sun, chief financial market analyst at MUFG Bank.

Foreign holdings of Chinese bonds more than tripled from 2019 to 2021, but remain relatively small, accounting for 2.91 per cent of the interbank debt market, according to Monday's data.

Their holdings are concentrated in government bonds and quasi-sovereign policy bank bonds.