Highlights in the March 2021 Report

Interest in China’s sovereign debt market surged in 2020 as international investors hedged against a global volatile market in equities and declining U.S.Treasury yields, with losses driven in part by the coronavirus crisis. Increasing foreign investment in Chinese government bonds rose in tandem with the rising volume of issuances by the Ministry of Finance throughout the year.

Foreign holdings of China’s treasury debt surged to a record 1.88 trillion RMB ($287 billion) as of end-December. China issued its first bond with a variable interest rate tied to a key benchmark (dubbed “DR”) in December, joining other major economies in reforming its benchmark rate framework as it tries to improve transparency on pricing.

Defaults spiked with Chinese companies cancelling or delaying issuance of roughly 200 bonds worth134.4 billion RMB ($20.5 billion) between early November and late-December. Maturing bonds exceeded new debt sales in November by 48.5 billion RMB, with monthly net financing turning negative for the first time in 2020.