At the beginning of this year, the custody bond balance of overseas institutions was 3.5 trillion yuan, and over the weekend just past, according to the latest data released by the central bank, all overseas institutions held 3.21 trillion yuan in bonds in the interbank market.

That is to say, since the beginning of 2023, in this quarter, the amount of Chinese bonds held by overseas institutions has decreased by 290 billion yuan.

Are these overseas institutions selling off RMB bonds and fleeing on a large scale?

01, Real Yield

Some people say that the reduction of China's national debt is related to the continuous interest rate hikes in the United States.

After the emergence of the banking crisis, the United States is still continuously raising interest rates, while China has recently lowered the reserve requirement ratio by 0.25% in the opposite direction.

The interest rate difference between the two countries is already widening, and now the United States is still continuously tightening its monetary policy, while China is appropriately relaxing it, so, from the perspective of yield alone, many investors are selling Chinese bonds and buying American bonds to earn more profits.

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But this kind of statement is only part of the matter, the real investment institutions have to measure a lot more.

For example, the yield of bonds, the real calculation shows that U.S. bonds are at a loss, while RMB bonds are profitable.

During this period, U.S. inflation has slightly declined, with the latest CPI dropping to 5%, but the yield on U.S. ten-year bonds has also declined, currently below 4%, which means that after purchasing U.S. government bonds, the bond interest income obtained will be completely eroded by inflation.In addition to the fact that interest rates are negative, it must also be considered that throughout last year, the overall price of U.S. Treasury bonds was falling. This means that investing in U.S. Treasury bonds not only fails to earn interest but also fails to preserve the principal.

Under these circumstances, the investment value of Chinese yuan-denominated bonds becomes extremely high. Our inflation rate was only 1.3% in the first quarter of this year, far lower than the yield on government bonds, which first guarantees a net income from bond interest.

In fact, as the Chinese yuan continues to appreciate, purchasing yuan-denominated bonds can also yield gains from currency exchange rates.

Therefore, if institutions have to choose between U.S. Treasury bonds and Chinese government bonds with funds in hand, it is believed that funds will resolutely opt for yuan-denominated bonds.

02. Escaping the United States

At present, if overseas institutions want to invest, they not only consider the interest rate differential but also need to consider the benefits brought by the investment environment.

Currently, the deposit balances in several large U.S. banks are continuously declining, with deposits continuously flowing out. Moreover, most of the funds withdrawn by depositors have flowed into money market funds.

Note that it is not flowing into the bond market, which itself indicates that U.S. bonds are unattractive to funds.

Depositors believe that funds in money market funds will yield more than deposits. However, the money market fund market also has significant risks.

Now, the U.S. debt ceiling crisis has entered a countdown, and it may default in just two months.At that time, the turmoil in the bond market will inevitably trigger a wave of redemptions in money market funds.

Additionally, according to the stock data from April, the stock profits of major banks have all declined, and the stocks of some other industries are also falling.

Therefore, investing funds in the stock market or the bond and money markets is not a good choice either.

In this situation, funds that can leave the United States are continuously fleeing.

Overseas institutions selling off RMB bonds and returning to the United States? This is almost an unimaginable thing.

03, Summary

We review the bond holding situation of overseas institutions again.

At the end of February, this figure was 3.20 trillion yuan, slightly less than at the end of March.

What does this indicate? It indicates that in March of this year, overseas institutions bought RMB bonds again.

Although the holding amount only increased by 10 billion yuan, this fluctuation itself shows that overseas funds holding RMB bonds increase and decrease from time to time, but if the time span is extended, the overall trend is continuously increasing.Based on recent stock market capital data, there has been a significant influx of foreign capital into the Chinese stock market. This suggests that funds from the sale of Chinese bonds are likely being channeled into the stock market.

Regardless, the continuous appreciation of the Chinese yuan exchange rate indicates that overseas funds are continuously purchasing the currency. The exchange rate rises when the amount purchased exceeds the amount sold.

Clearly, there is no issue of selling off Chinese bonds and fleeing the Chinese market.