Investing in Chinese government bonds

Hello,

Here’s a subject that doesn’t seem to have been covered here already.

Chinese government bonds offer attractive yields. Here’s a comparison of 10 year bonds.

As far as I can tell, there is no way for individual investors to buy Chinese government bonds by CIBM direct or Bond Connect.

There are a number of ETFs specialized in these instruments but I’m having a bit of trouble narrowing it all down.

Does anyone have any experience with this subject that he can share?

Which part of the interest rate parity does not apply to you? Is CNY your main currency?
(USD denominated bonds for China trade ~0.5% above US sovereign, so seems like interest rate parity applies, with the market pricing only a small risk for China default vs. US)

edit: and if you really want to invest in it, and your main currency is CHF https://www.ishares.com/ch/institutional/en/products/295830/ishares-core-global-aggregate-bond-ucits-etf-chf-hedged-acc-fund is likely one of the right fund (Chinese bonds are the third biggest holding)

But note that the expected returns are similar to bonds of the same risk in the hedged currency (minus TER), so you’re not much better off than investing in negative yielding confederation bonds, it’s just more diversified.

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Good point about the interest rate parity.
If I could buy an ETF focused on Chinese government bonds in CNY I absolutely would.
I don’t think that such a beast exists, at least I can’t find one.

Why?
Say you earn 3% p.a. with their bond, but CNY-CHF rate goes down 5-10%, what happens with your investment “in CHF terms”?

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I didn’t explain my perspective. I invest in Chinese equities already mostly via HK, otherwise via an associate having access to the mainland markets. I think that there are some good publicly traded companies over there. It would be very cool to keep some liqudities in CNY, let it grow at a decent rate awaiting buying opportunities. My purpose is not CHF maximization.

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The risk of default in sovereign currency is not the same as the risk of defaulting in foreign currency bonds.

Indeed it isn’t. But it’s a good illustration of interest rate parity nonetheless (showing that returns in a different currency will be similar to those of similar risk, e.g. sovereign vs. sovereign).

Chinese bonds may be 3rd but it is barely 7%, US bonds are vastly represented and you should avoid it at all cost

I did some research with one or two interesting options in Singapore if you want to increase the your RMB exposure and reduce the correlation to equities. As it is a bit long, you will find more details under What access to Chinese bonds? – Guide Finances. My current understanding is that a reduced rate of 7% on bond interest would apply in view of the Sino-Singapore treaty.

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If you’re going for unhedged, there’s iShares China CNY Bond UCITS ETF | CNYB (with slightly higher TER), or UBS ETF (LU) J.P. Morgan CNY China Government 1-10 Year Bond UCITS ETF (USD) A-acc | A2PYAK | UBS Germany

That said unhedged bond holdings aren’t usually recommended :slight_smile: (and hedged don’t make a lot of sense in current environment).

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