Make a Play on Safer Haven China Bonds with the CBON ETF

While other nations continue to struggle with rising cases, China might be the ideal play for safe haven bond alternative ETFs like the VanEck Vectors ChinaAMC China Bond ETF (CBON).

CBON seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ChinaBond China High Quality Bond Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark 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”). CBON’s net expense ratio comes in at 0.50%.

CBON gives fixed income investors:

  • Yield Premium: Attractive yield pickup over developed markets bonds.
  • A Portfolio Diversifier: RMB denominated bonds have historically exhibited low correlation to other asset classes.
  • Access to the world’s second largest bond market: Broad exposure to bonds issued by the central government, policy banks, and corporations.

CBON Chart

The Best Type of China Bond Exposure?

When it comes to getting exposure to China bonds, a CNBC report noted that investors should “go for central and local government bonds, Bo Zhuang, chief China economist at TS Lombard, told CNBC’s ‘Street Signs Asia’ on Wednesday.”

“It’s quite unlikely to have a default, even though other segments of China might be facing all these default risks,” Zhuang said when comparing safe haven government bonds to riskier corporate bonds. “Even (state-owned enterprises) are not actually immune (to) the defaults.”

“So, stick to the government, and maybe you can buy the policy banks, financial bonds, which are also quasi-sovereign,” Zhuang said.

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