Chinese Bonds Are Keeping Yield-Hungry Investors Interested

Fixed income investors know that yield is difficult to come by nowadays, which is forcing them to look overseas. One place they may want to look is China, which is seeing a growing interest in their bonds.

“Foreign ownership across China’s domestic bond market has set new record levels this year, as investors are drawn to the higher yields on offer in the country compared with other large economies,” a Financial Times article said. “Overseas institutional investors had upped their holdings of renminbi-denominated bonds to Rmb2.5tn ($360bn) by the end of June, according to a Moody’s report, compared with about Rmb2tn a year earlier. Fund managers have also reported billions of dollars of additional inflows in July into both government and bank bonds.”

“China’s bond market is open for business,” said Hayden Briscoe, head of Asia-Pacific fixed income at UBS Asset Management. The world was “absolutely starved” of a positive yield on nominal government bonds, he said, adding that even after the cost of hedging currency exposure, Chinese bonds were a “standout asset”.

Here are a pair of China-focused bond exchange-traded funds (ETFs) fixed income investors can consider:

  • VanEck Vectors ChinaAMC China Bond ETF (CBON): seeks to replicate as closely as possible the price and yield performance of the ChinaBond China High-Quality Bond Index. The index is comprised of fixed-rate, Renminbi (“RMB”)-denominated bonds issued in the People’s Republic of China (“China” or the “PRC”) by Chinese credit, governmental and quasi-governmental (e.g., policy banks) issuers (“RMB Bonds”).
  • KraneShares CCBS China Corporate High Yield Bond USD Index ETF (KCCB): seeks to provide investment results that track the price and yield performance of a specific fixed income securities index. The fund’s current index is the Solactive USD China Corporate High Yield Bond Index, which seeks to track the performance of outstanding high yield debt securities denominated in U.S. dollars issued by Chinese companies.

An ETF High Yield Seekers

High yield seekers looking to add more pop to their fixed income portfolio can take a look at the FlexShares High Yield Value-Scored Bond Index Fund (HYGV). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust High Yield Value-Scored US Corporate Bond IndexSM.

The index reflects the performance of a broad universe of U.S.-dollar denominated high yield corporate bonds that seeks a higher total return than the overall high yield corporate bond market, as represented by the Northern Trust High Yield US Corporate Bond IndexSM. The fund generally will invest under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of its index.

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