Japanese investors with an appetite for high yields have been flocking to Chinese bonds in order to appease this hunger as access to these areas of the $12 trillion Chinese bond markets have opened due to recent reforms. Data provided by the Japanese Ministry of Finance revealed that Japanese investors purchased 151 billion yen ($1.33 billion) of Chinese bonds year-to-date, which is close to double the amount invested in 2016.
“A growing number of investors are interested in Chinese bonds now,” said Hiroshi Yokotani, portfolio strategist at State Street Global Advisors. “The biggest attraction is their relatively high yield.”
In addition to the higher yields offered by Chinese bonds, China’s latest policy changes have provided the necessary ingress to allow more Japanese investors and investors across the globe to take part in the high-yielding bond bonanza.
“China’s policy stance on markets is becoming very open, which we take very positively. And the speed of their market reforms is quite fast, compared to other countries,” said Koichi Matsumoto, general manager of global fixed income investment.
Adding fuel to the flame is China temporarily eliminating taxes for foreign institutions who are interested in allocating capital into the country’s corporate bond market. However, more access to yuan funds will be necessary in order to fully experience the exponential growth potential that can be realized in the Chinese bond markets.
“We want to expand investments in Chinese bonds as the market size grows. But while we have lots of yen, we need to be mindful of funding in foreign currencies,” said Yasuhiko Sugimoto, general manager of international treasury at Mizuho Bank. “For us, it is vital to have a liquid repo market.”
ETF Options for High-Yield
Fixed-income ETFs can offer investors with high-yield exposure, such as the iShares iBoxx $ High Yield Corp Bd ETF (NYSEArca: HYG), iShares 0-5 Year High Yield Corp Bd ETF (NYSEArca: SHYG) and SPDR Blmbg BarclaysST HY Bd ETF (NYSEArca: SJNK). With the aforementioned available in an ETF wrapper, it gives investors exposure to high-yield assets without the additional credit risk of direct exposure to the bonds themselves.