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Why China Bonds Are Drawing Foreign Investors Again
Description
Foreign holdings of Chinese government bonds have risen for five straight months as of June 2026, reversing a two-year outflow trend. Lucas and Luna break down the drivers: a stabilizing yuan pinned near 6.77 per dollar, a yield premium over US Treasuries that has widened to roughly 160 basis points, and Beijing's quiet push to include more onshore bonds in global indexes. They also examine why this capital inflow hasn't boosted Chinese stocks, with the KWEB ETF up just 1.4% over the past week while the yuan holds steady. The conversation touches on the 'carry trade' logic that is drawing yield-seeking foreign funds, the role of China's central bank in managing expectations, and what this divergence between bond and equity flows says about investor conviction in China's long-term growth story.