(Bloomberg) — Heavy redemptions by retail investors in China are prompting the country’s financial product managers to reduce their bond holdings more than ever before. Some analysts say the time to sell debt is far from over.
Managers of domestic mutual funds and wealth management products unloaded 1.3 trillion yuan ($186 billion) of bonds from the interbank market last month, the highest on record, according to Bloomberg calculations by ChinaBond and Shanghai Clearing House going back to 2017.
The outflow is nearly double that of China’s bond sales by international funds this year, signaling the growing influence of individual investors in the country’s debt market. Chinese bonds have held high since November as the country began to ease its strict Covid rules, a move that has fueled an exodus of retail investors, including in wealth management products.
The shock wave of wealth management product redemptions is far from over, Huaan Securities analyst Yan Ziqi wrote in a note. The volume of matured products will remain high in the first quarter of next year, which will allow many retail investors to get their money back, he said.
Regulators are said to have asked the proprietary trading desks of some banks and insurers to buy bonds to offset the redemption shock. The People’s Bank of China also pumped more cash into the banking system than expected in December, a move seen as strengthening bonds.
Relatively liquid bonds sold off sharply last month, Haitong Securities Co. notes. Going forward, however, government bonds may stabilize faster than debt because of more liquidity and the possibility of redeemed funds being returned as bank deposits, analysts led by Jiang Pishan wrote.
Banks’ certificates of deposit, policy bank bonds and corporate notes were among the most traded securities by funds including WMPs last month, according to Bloomberg calculations. Financial products held 35.7 trillion yuan of Chinese bonds at the end of November, about 28 percent of the total interbank market.
China’s benchmark 10-year government bond yield rose 24 basis points in November, while corporate credit posted the biggest yield in five years. The 10-year sovereign bond yield fell this month after jumping to more than a year high.
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