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Author: Chen Zhi

Editor: Zhang Xing

Image source: Photo Network

As international geopolitical risks continue to escalate, bond carry trades remain active, and global financial market volatility increases sharply, more and more foreign capital is increasing its holdings of domestic bonds.

The operation status of overseas business in the interbank bond market in July released by the China Foreign Exchange Trade System showed that overseas institutional investors bought 1092.4 billion yuan (denominated in RMB, the same below) of bonds and sold 864.1 billion yuan of bonds, with a net purchase of 228.3 billion yuan.

It is worth noting that the settlement agency model is still one of the main channels for foreign capital to increase its holdings of RMB bonds. Data shows that in July, foreign capital completed RMB bond transactions of 899.4 billion yuan through the settlement agency channel (835.7 billion yuan in agency transactions and 63.8 billion yuan in direct transactions), with a net purchase of 156.3 billion yuan; through the Bond Connect model, RMB bond transactions of 105.7 billion yuan were completed, with a net purchase of 72 billion yuan.

"Behind this is the fact that allocations mainly consisting of overseas long-term capital such as foreign central banks and sovereign wealth funds prefer to increase their holdings of domestic bonds through the settlement agency model. In comparison, trading accounts mainly consisting of hedge funds and overseas wealth management products are keen to operate interest rate carry transactions through the Bond Connect model." A domestic private equity fund bond trader revealed to reporters.