$30 billion outflows from China’s bond market

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China’s bond market has been facing capital outflows and there are signs the government is growing nervous about the $30 billion outflow as it delays data and tries to manage investor expectations.

International funds withdrew 55.9 billion yuan ($8.3 billion) from the country’s debt in June, in a fifth month of net sales that swelled total outflows this year to 200 billion yuan.

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This is a sharp turnaround for a market that has seen global participation increase every year since 2014.

In some ways, the outflows come as no surprise as they come after aggressive rate hikes by the US Fed drove the premium offered over Chinese bond yields to a discount.

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However, the exodus is cause for concern as it comes at a special time before the country’s leadership summit, and coincides with an escalating economic and real estate crisis.

Chinese officials have downplayed the outflows, insisting the country remains an important destination for cross-border bond investments.

“Fluctuations in bond flows are very common in both developed and emerging markets, while the volatility observed in China is relatively low,” the spokesman for the State Administration of Foreign Exchange told reporters.

Source: Capital

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