Foreign investors are ramping up their purchases of Chinese interbank debt instruments, lured by rising mainland yields, favorable currency conversion rates, and the market’s low correlation with global trends.
U.S. dollar investors, in particular, are aggressively buying negotiable certificates of deposit (NCDs)—short-term debt instruments used for interbank financing—due to their hedged returns outpacing those of U.S. Treasuries.
While foreign investment in Chinese government bonds has remained stagnant since September 2024—following a year of steady inflows—the recent surge in NCD purchases suggests a shift in capital flows. This increase provides some support to the yuan amid ongoing U.S.-China trade tensions.
At the end of February, foreign investors held a record 1.14 trillion yuan ($157.51 billion) in NCDs, marking the third consecutive month of net buying.
- One-year NCD yields have climbed 40 basis points (bps) this year, reaching 2%.
- 10-year sovereign yields have increased 20 bps to 1.89%.
- Dollar investors can earn 2.8% on yuan swaps, making NCD investments yield 4.8%, compared to 4% for one-year U.S. Treasuries.
Investor Sentiment
The appeal of Chinese debt lies in its low correlation with global markets and favorable yield dynamics.
“Global investors are looking for assets that behave differently from the rest of the world. That mindset is driving some capital back to China,” said Cary Yeung, Head of Greater China Debt at Pictet Asset Management.
“Rising local yields, a favorable hedging environment, and the prospect of U.S. interest rate cuts make Chinese bonds increasingly attractive,” noted Wei Li, Head of China Multi-Asset Investments at BNP Paribas.
With investors seeking diversification and higher returns, China’s interbank debt market is emerging as a compelling alternative amid shifting global financial conditions.
