(Yicai) Jan. 16 -- Foreign investors raised their holdings of yuan-denominated bonds by about CNY280 billion (USD39 billion) last year, indicating a steadily growing willingness to invest in the Chinese market.

Overseas institutional investors held CNY3.7 trillion (USD510.9 billion) of yuan bonds in the interbank market as of Dec. 31, accounting for about 2.7 percent of the total, according to data released yesterday by the Shanghai branch of the People’s Bank of China.

Foreign appetite for Chinese bonds has been gradually rising since last September. Overseas investors added nearly CNY250 billion (USD34.8 billion) in November, the most since 2016, and USD24.5 billion last month.

More than 1,100 foreign institutions had entered the Chinese bond market as of the end of last year and more than 95 percent of them did that through the Bond Connect, a trading mechanism between the Chinese mainland and the Hong Kong Special Administrative Region. In December, 10 new investors joined.

US bond yields began to fall as the Federal Reserve stopped hiking interest rates last September, leading to a narrowing yield gap between yuan bonds and US dollar notes, Shanghai Securities News reported today, citing Yu Lifeng, senior analyst at Golden Credit Rating. The gap had shrunk by 92 basis points as of Dec. 31 from an October high, prompting foreigners to buy yuan bonds.

The US dollar index also started to fall from October. The yuan appreciated by 2 percent against the greenback at the end of last month from late August. A stronger yuan gives foreign investors confidence in yuan-denominated assets, Yu added.

Editor: Emmi Laine