Foreign investors have dumped Chinese government bonds over the past two months, unwinding a popular and lucrative trade that had been enabled by Beijing’s efforts to support its currency.
Investors had poured more than $130bn between November last year and August into a trading strategy that involves lending dollars to Chinese institutions and then using the renminbi proceeds to buy Chinese bonds. The return from loaning dollars and investing in bonds could be up to 6 per cent, well above the yield on a US Treasury bond.
But the announcement of a bumper stimulus package by Beijing in September sparked a sell-off in Chinese government bonds and a rebound in the renminbi, inflicting losses on investors who had piled into the trade.
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