U.S. Treasury yields are surging, and Japan is raising interest rates too.
Mainland China, by contrast, has become a low-interest-rate haven due to a lack of investment opportunities.
Renminbi-denominated bonds issued in China’s domestic bond market by foreign institutions, such as multinational corporations, are known as panda bonds. Their interest rates are generally below 2%.
An increasing amount of this money is now being converted into foreign currencies and sent overseas. Even if investors simply buy U.S. Treasuries without giving it much thought, the yield spread is still very attractive.
China could replace Japan and Switzerland as a global source of low-cost funding.
Mainland China, by contrast, has become a low-interest-rate haven due to a lack of investment opportunities.
Renminbi-denominated bonds issued in China’s domestic bond market by foreign institutions, such as multinational corporations, are known as panda bonds. Their interest rates are generally below 2%.
An increasing amount of this money is now being converted into foreign currencies and sent overseas. Even if investors simply buy U.S. Treasuries without giving it much thought, the yield spread is still very attractive.
China could replace Japan and Switzerland as a global source of low-cost funding.