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Foreign yuan bond holdings hit new peak in June as yields lure buyers

SHANGHAI, July 6 (Reuters) – Foreign holdings of Chinese yuan bonds hit fresh highs in June as attractive yield premiums continued to lure investors, official data showed on Monday.

Offshore investors held yuan-denominated Chinese bonds worth a total of 2.51 trillion yuan ($355.9 billion) at the end of June, according to Reuters calculations using official data from interbank market clearing houses China Central Depository and Clearing Co and the Shanghai Clearing House.

That was an increase of 3.4% from the previous month and a record high. Foreign investors raised their holdings of Chinese bonds by 14.6% in the first half of 2020, the data showed.

As in May, the increase was driven by a jump in holdings of bonds issued by China’s three policy banks. Foreign holdings of the instruments, which are among the most traded in China’s interbank market, rose 7.4% to 639.85 billion yuan.

Offshore investors raised their holdings of Chinese treasury bonds by nearly 3% to 1.49 trillion yuan, the data showed.

Chinese bond yields became increasingly attractive to offshore investors in June, as central and local governments issued a flood of new special bonds to help fund the economic recovery from the coronavirus pandemic.

The spread of Chinese 10-year government bonds over their U.S. counterpart widened by 18 basis points over the month of June. On Monday, the spread was at 231.5 basis points, according to Refinitiv data, a record high. ($1 = 7.0525 Chinese yuan) (Reporting by Andrew Galbraith; Editing by Jacqueline Wong)

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