China’s bond market has been bleeding as the world’s second-largest economy is slowing down rapidly, pushing capital to other destinations.
Reuters cited the latest Institute of International Finance (IIF) data reporting that capital outflows from China’s bond market reached $1.4 billion in September.
Over the past eight months, China’s debt markets evaporated a total of $98.2 billion, mainly due to the economic slowdown.
International investors have lost confidence in China and pulled capital from this market due to the COVID pandemic, the lockdowns, the faltering housing market, and other issues which led to the economic downturn.
The latest data pointed to further cooling of the economy, with China’s industrial production barely growing in September and the service sector slowing.
In addition, the economy is still struggling amid pandemic control measures and weaker global demand.
According to Mark Reade, head of fixed-income desk research at Mizuho Securities Asia, there is another driver of the sell-down in Chinese bonds.
Nikkei cited Reade explaining that, with the interest rate hikes from the U.S. central bank, the yield on 10-year Treasury bonds topped that of the Chinese equivalent for the first time in 12 years in April.
That’s why foreign investors are withdrawing capital from China and buying high-yield debt elsewhere.
Besides the bond market, foreign capital flowed from the Chinese equity market.
Data shows that Chinese stock portfolios lost $700 million in September.
This year, the accumulated capital outflow from China’s stock market has reached $2.2 billion.