Beijing continues to pursue the internationalization of its currency through multiple strategic initiatives, including boosting liquidity and expanding flows between onshore and offshore markets. Although Chinese offshore bond yields hover around 2% to 2.5%, projected currency appreciation can lift total returns above dollar-denominated assets. Specific steps, such as introducing five-year futures and encouraging foreign bond issuance from countries like Kazakhstan, support this ongoing transition. As a result, JPMorgan Asset Management is maintaining an allocation to yuan-denominated credit and 30-year sovereign debt.
Key points
Anticipated currency appreciation can help Chinese offshore debt outperform dollar-denomi…: Anticipated currency appreciation can help Chinese offshore debt outperform dollar-denominated bonds despite historically wide interest rate differentials.
Beijing remains committed to internationalizing its financial system through structural l…: Beijing remains committed to internationalizing its financial system through structural liquidity enhancements and expanded cross-border capital channels.
Investors can leverage yuan-denominated fixed income and long-dated government debt to se…: Investors can leverage yuan-denominated fixed income and long-dated government debt to secure portfolio diversification amid sluggish domestic inflation.
Sources checked by our analysis pipeline: 1
(Bloomberg) -- China’s push to internationalize the yuan has entered a “steady, slow, but nonstop” phase that is likely to support further gains in the currency, according to JPMorgan Asset Management.
The yuan may appreciate at least 10% over the long run in real effective exchange-rate terms, Julio Callegari, chief investment officer for Asia fixed income, said in an interview this week. That measure tracks a currency’s strength against a trade-weighted basket of peers while adjusting for inflation.
“We buy, and we like it,” he said in Singapore. The appeal lies in the currency’s steady performance and the prospect that those gains can continue, he added.
The offshore yuan has climbed almost 5% against the dollar this year to its strongest level since 2022, supported by resilient exports that generate foreign-currency inflows and Beijing’s push to expand the renminbi’s global use. The gains have come despite subdued inflation and a weak economy pushing Chinese interest rates lower, widening the gap with US 10-year yields to a record.
Callegari noted that while Chinese offshore bond yields of 2%-2.5% may look unattractive…
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