While sovereigns world-wide have been enjoying of solid performances driven by the fear of a trade war between the US and China and dovish central banks, Chinese government bonds’ performance year to date has disappointed investors. As a matter of facts, the return on Chinese government bonds year to date is close to zero. Our bond strategies Althea said that, the poor performance of these sovereigns might have been caused by two factors. First, by the fear that a credit crunch could have shaken the Chinese economy especially after the government seized for the first time in 18 year a small private lender in order to avoid its default. Secondly, by an unanticipated escalation of a trade war between the US and China.
Regardless, she also mentioned that we have reasons to believe that Chinese sovereigns will rise in the long term for several reasons. Firstly, the People Bank of China is clearly ready to do whatever it takes to support the economy. Secondly, the demand for Chinese government bonds might further increase now that these securities clearly offer a more attractive yield compared to sovereigns worldwide. As we mentioned in earlier articles, Chinese government bonds are less correlated to global sentiment and they represent a good option for investors looking to diversify their portfolio. This should drive demand for CGBs higher.
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