ETF Idea After the rise in US rates, are Chinese go | FSMOne SG - Research Highlights

ETF Idea

After the rise in US rates, are Chinese government bonds still attractive?

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• While the US is fighting elevated inflation with rate hikes, China has remained in a monetary easing mode – cutting key interest rates again on 15 August.

• Following the sharp rise in US rates, Chinese government bonds (CGBs) have lost their yield advantages. The 10-year Treasury yield has reached 2.8%, while the yield of similar-tenured CGBs has fallen slightly to 2.6%.

• For investors on the hunt for higher potential returns, we reckon that the opportunity now lies within USD-denominated Asian IG debt and short duration bonds.

• With the increasingly divergent monetary policy, we think that RMB weakness is likely to persist in the near-term which could erode value from a total return basis for foreign investors.

• That being said, we continue to acknowledge the long-term story of CGBs. Apart from providing portfolio diversification benefits, CGBs stand to benefit from the ongoing shift away from the dollar.

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: ICBC CSOP FTSE Chinese Govt Bond Index ETF (SGX:CYC), Premia China Treasury & Policy Bank Bond Long Duration ETF (HKEX:9177)