Foreigners offload Chinese bonds for 9th straight month in Oct

CCDC data also showed that foreigners had offloaded a total of 595.9 billion yuan worth of Chinese debt. "All in all, monetary policy divergence and credit risk is and will continue to be the key factors to watch," Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, said in a note published earlier this month.

Overseas investors sold their holdings of China's onshore bonds for a ninth straight month in October, albeit at a slower pace, as interest rate differentials between China and the United States continued to drive foreigners away.

China, along with Japan, has been a major outlier in the global tightening spree with Beijing focused on stimulating its COVID-hit economy. But market watchers said such policy divergence has led investors to seek higher yield premiums elsewhere - particularly those offered by U.S. bonds. Foreign holdings of yuan-denominated bonds traded on China's interbank market stood at 3.38 trillion yuan ($479.88 billion) at end-October, down from 3.40 trillion yuan a month earlier, the central bank's Shanghai head office said on Tuesday.

That marks the ninth consecutive month of outflows and the longest streak of outflows on record. But the pace of outflow has slowed, as such holdings fell by a larger margin of 80 billion yuan in September.

In details, overseas institutional investors sold 34 billion yuan worth of interbank yuan bonds last month, down from 61.6 billion yuan in September, according to data from China Central Depository & Clearing Co (CCDC), the main depository institution for China's interbank bond market. CCDC data also showed that foreigners had offloaded a total of 595.9 billion yuan worth of Chinese debt.

"All in all, monetary policy divergence and credit risk is and will continue to be the key factors to watch," Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, said in a note published earlier this month. "If the U.S. takes a less hawkish stance in rate hikes, the stable lower yield differentials with China may reduce the pressure on capital outflows."

The yield gap between China's benchmark 10-year government bonds and their U.S. counterpart hovered at the widest level in 15 years in October before shrinking to around 100 basis points on Tuesday. ($1 = 7.0435 Chinese yuan)

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