Foreign Investors Increase Chinese Debt Holdings Amid Rising Yields

Foreign investors are increasingly attracted to Chinese interbank debt instruments, particularly negotiable certificates of deposit (NCDs), due to rising yields and favorable currency conversion rates. As of February, foreign holdings of NCDs reached a record 1.14 trillion yuan ($157.51 billion), marking the third consecutive month of increases, with NCDs offering a hedged return of 4.8% compared to 4% on U.S. Treasuries. Analysts highlight that the low correlation of Chinese debt markets with global trends, alongside rising local yields, makes these investments particularly appealing amidst ongoing U.S.-China trade tensions. Citi analysts have also noted a shift in market sentiment, reducing their outlook on U.S. equities while upgrading their stance on Chinese investments. This trend reflects a broader search for diversification as U.S. economic uncertainty persists, indicating a potential new era in international investment strategies. Overall, the current environment suggests enhanced stability for the yuan and growing economic ties between China and global investors.