Chinese investors are buying of offshore bonds in recent months, as global yields have risen while the yuan has weakened, Bloomberg reported. Offshore debt holding via the Southbound Bond Connect trading link between mainland China and Hong Kong has tripled in three months and stood at RMB 301bn ($42.6bn) as of August, according to data from the Shanghai Clearing House and Bloomberg. During the period from the May-August 2022, over 90% of the current year’s purchases were done. Regulations state that the daily limit for net bond buying is RMB 20bn ($2.8bn) and the annual quota is RMB 500bn ($70.5bn). The Southbound Bond Connect link began in September 2021, offering services to mainland institutional investors interested in the offshore market. Onshore yields have moved lower than offshore counterparts as the PBoC cut its policy rate to support a economy hit by pandemic and the property crisis. ANZ Group senior strategist Zhaopeng Xing said, “Banks are the major buyers via Southbound bond link using their own funds. High-grade notes of Chinese issuers, including state firms, are among the most popular targets of mainland investor.” A market maker for Southbound Bond Connect expects the uptick in flows to continue as the rate differential between US Treasuries and Chinese government debt increases.

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