(Yicai Global) Feb. 4 -- Overseas investors powered a record USD4.6 billion in daily turnover of Chinese bonds last month, extending their buying spree to a 26th month in a row, amid China’s rapid economic recovery and higher yields.

Average daily turnover exceeded CNY29.4 billion (USD4.6 billion) in January, the Shanghai Securities News reported today, citing data from Bond Connect, a joint venture between China Foreign Exchange Trade System and the Hong Kong Stock Exchange. Some 6,470 transactions were made, with trading volume of CNY588.3 billion (USD91.1 billion).

Offshore institutional investors held CNY3.1 trillion (USD472.9 billion) of Chinese bonds in the month, a jump of 62 percent from a year ago and a 6 percent increase from a month earlier, the report said. They had added CNY1.07 trillion worth to their portfolios last year.

The heightened interest can be explained in three ways, the report cited Zheng Kuifang at the Financial Markets Department of China Construction Bank as saying. 

First, China’s economy has been recovering well due to its effective epidemic prevention and control. Secondly, thespread between Chinese and US 10-year Treasury bonds recently widened to a record. Moreover, the Chinese yuan has appreciated against the US dollar since last June so investors can gain on the strengthening redback.

Over the past few days, the yield on 10-year US Treasury bonds has risen while the US-China interest rate spread has narrowed from an historic 250 basis points to 210 bips. Thus, the yuan's appreciation has slowed with the exchange rate staying at around 6.45 per dollar. But analysts are still optimistic about the Chinese market.

Foreign investors will boost their Chinese bond holdings by more than CNY1 trillion this year as yuan-denominated notes, which still make up less than 1 percent of all global assets, are added to international bond indexes, industry insiders said. 

Editor: Emmi Laine, Xiao Yi