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“[These bonds] circumvent the restrictions of the non-convertibility of the renminbi,” said Xu Qiyuan, deputy director of the American Studies Institute at the Chinese Academy of Social Sciences, in a February report.
“At the same time, they possess high-grade sovereign credit backing and liquidity and minimise the risk of sanctions or asset freezes due to holding assets within the major US financial system, such as US Treasury bonds.”
Xu said geopolitical hedges aligned with a strategic push by sovereign institutions to diversify their asset allocations. This demand was being further fuelled by a shortage of high-quality liquid assets, despite relatively abundant global liquidity, he added.
He cited the robust demand for Beijing’s US$4 billion dollar-denominated sovereign bonds issued in Hong Kong last November – which matched the US’ borrowing costs for the first time – as an example.
