International holders reduced their total positions by a net 108.5 billion yuan, equivalent to $16.1 billion, according to data from two clearinghouses, China Central Depository & Clearing Co. and Shanghai Clearing. House. That was slightly lower than the 112.5 billion yuan drawdown in March. Foreign holdings are largely, but not entirely, made up of Chinese government bonds and bonds issued by large government-backed lenders, known as strategic banks.

Sellers in April included VP Bank AG, a Liechtenstein-based financial institution. The company last June invested in Chinese government bonds for the first time, allocating about 2% of its high net worth discretionary mandates to the asset class, said Felix Brill, chief investment officer of VP Bank.

Mr Brill said the significantly higher yields on Chinese bonds relative to US Treasuries and European government bonds, and the inclusion of yuan-denominated securities in global bond indices, made them attractive to investors. era. Following his investment, Chinese government bonds rose in price as their yields fell, and some European investors earned returns of up to 16%, in part because the Chinese currency rallied significantly. strengthened against the euro.

In early April, VP Bank’s investment committee decided to liquidate its position in Chinese bonds and “lock in profits”, Mr Brill said. “It was such a good transaction…everything has gone well over the past 10 months,” he said, adding that with rates rising elsewhere, the company had concluded there were better deals. investment opportunities in other types of bonds.

For years, Chinese government debt has offered a substantial yield advantage over Treasuries, with that extra yield peaking at more than 2.5 percentage points in 2020. But both bond markets have changed stance this year, the US Federal Reserve having started raising interest rates while the People’s Bank of China moderately eased policy to mitigate the economic impact of a new wave of Covid-19.

On Tuesday, the 10-year U.S. Treasury yield stood at 2.969%, 0.15 percentage points higher than its Chinese counterpart, according to FactSet.

Rob Drijkoningen, senior portfolio manager at Neuberger Berman and co-head of its emerging market debt team, said China’s strong government bond price increases are likely over for now as China’s central bank does not should not ease its monetary policy considerably.

Furthermore, “the recovery in yields is unlikely to return any time soon,” he said, referring to the spread between Chinese government bond yields and US Treasuries. He added that global investors’ willingness to invest in Chinese assets has also been affected by Russia’s invasion of Ukraine earlier this year and US-China political tensions.

Still, Drijkoningen said foreign institutions with a long-term strategic view on investing in China would likely continue to invest in Chinese bonds.

The April decline included a net reduction of 42 billion yuan, or the equivalent of $6.2 billion, in holdings of onshore Chinese government bonds, according to figures released Tuesday by the CCDC. Foreigners also dumped $6 billion in notes issued by political banks, the data showed.

The total value of foreign assets fell to 3.768 billion yuan, or about $559 billion. It was the lowest reading since last July.

Flows in and out of Chinese equities were less regular. Global investors bought 6.3 billion yuan net, or the equivalent of $935 million, of Chinese domestic stocks through the Stock Connect trading link in April, after a net sale of around $7 billion in March, according to data from Wind.

As of Tuesday, global investors had sold the equivalent of $1.7 billion worth of Chinese stocks this month.

Write to Rebecca Feng at [email protected] and Serena Ng at [email protected]