Overseas Funds Cut China Sovereign Debt as Yields Lag Treasuries

Overseas funds cut China sovereign debt holdings to RMB2tr (USD361bn) in August, the lowest since January 2021, as foreign ownership dropped to 5.2%, Chinabond data showed. Outflows extended for a third month as investors shifted into equities, with the CSI 300 Index rallying more than 25% from April lows. Demand for Chinese bonds has weakened as yields trail US Treasuries, reducing their appeal. JPMorgan also announced it will cut Chinese debt’s weighting in its flagship emerging market index, further pressuring sentiment. Foreign funds trimmed holdings of negotiable certificates of deposit to the lowest since May 2024, unwinding earlier inflows as FX-hedged returns eroded. Analysts said rising US yields and weak demand for Chinese debt will keep outflows elevated.