Some of China’s largest exchange-traded funds tracking long-term bonds have seen their biggest inflows in months, reflecting growing investor demand for safer assets even as signs of economic resilience emerge.
The Bosera SSE 30-Year China Treasury Bond ETF has generated record inflows of around around 700 million yuan in each of the past two sessions, according to Bloomberg-compiled data, bringing its market capitalization to more than 9 billion yuan. The Pengyang ChinaBond 30-year Treasury Bond ETF, whose fund is double that size, attracted an inflow of 1.1 billion yuan on Monday, the most since March.
In another sign of appetite for sovereign debt, futures on 30-year Chinese government bonds jumped as much as 0.5% Tuesday, the most since May 30. The move followed China’s release of a mixed set of economic data, including higher-than-expected gross domestic product in the second quarter, June retail sales that came below estimates, and a continued contraction in property investments.
The rising interest in long-term bonds in China is a contrast to the turmoil in developed markets, where ultra-long bonds have been rocked by rising fears that governments are spending more than they can afford.
The surge in demand for the ETFs underscores investors’ broad bullishness for China’s bond market even as equities rebound, amid bets that the People’s Bank of China will support an economy facing potential export headwinds. At a Monday press briefing, central bank officials again vowed to maintain a moderately loose monetary policy and struck a measured tone on risks tied to banks’ purchases of government bonds.
“We expect China’s GDP will decelerate in the second half of the year and local rates will be falling more quickly with deflationary pressure likely to deepen,” said Becky Liu, head of China macro strategy at Standard Chartered Bank.
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China’s 10-year government bond yields could fall to 1.3% by year-end versus the current level of around 1.66%, Liu said, presuming the PBOC will keep liquidity loose and further roll out monetary easing measures.
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