Foreign holdings of Chinese debt grew at the fastest rate on record during July and August as the yuan rose against the dollar and the Chinese economy evinced clear signs of economic recovery.
Foreign holdings of onshore bonds rose to 2.86% of the total market in August 2020 from 2.52% at the end of 2019. Foreign purchases were concentrated in government and quasi-governmental policy bank bonds. Foreign ownership of Chinese corporate bonds comprises a minuscule portion of the total.
China’s 5-year Treasury note yields almost three percentage points more than the US Treasury 5-year note. That’s the widest gap since the middle of 2013, when the Chinese currency traded at 6 to the US dollar.
We think the RMB exchange rate is headed back to its 2013 high, with a short-term technical target of CNH 6.67 to the dollar and a medium-term fundamental target of 6 to the dollar.