“China’s high money market fund returns are driven from the country’s high risk free rate. China’s yield curve is also very flat and delivers attractive yields relative to US treasuries. A 3mo China government bond delivers 3.39% vs a 3mo US government bond at 0.01%…that’s a 3.38% spread,” KraneShares said in December.
The ChinaBond Commercial Paper Index is up nearly 38% over the past five years compared to a gain of just 1.55% for the S&P US Commercial Paper Index. As the chart below indicates, investors can harness KCNY’s yield advantage without fear of significant downside deviations. [An ETF Alternative to Cash]
Not only is China the world’s third-largest bond market, but its $1.5 trillion corporate bond market is the world’s largest. Chinese companies are expected to absorb a third of global corporate debt needs over the next five years, indicating there could be a robust appetite for ETFs offering exposure to the country’s local commercial paper.
Dollar vs. Renminbi
Chart Courtesy: KraneShares