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UBS Reports: Chinese Yields Are Highest Globally

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EDITOR NOTE: In response to the COVID-19 lockdown, countries across the globe shifted monetary policy to accommodate businesses (and households) at risk of collapsing during the pandemic. As a result, bond yields around the world saw record-level declines. The exception is China, whose 10-year bonds are at 2.913% (compare this to 10-year US Treasury notes at just 0.7019%). What happened? Every country more or less followed the same playbook. And on that note, there’s some irony in the thought that China, a relative newcomer to the game of “capitalism,” might have proven itself the better player on the world stage.

China’s bond market is the exception, UBS Asset Management’s Hayden Briscoe said, as investors struggle in their hunt for yield.

Major central banks around the world have taken drastic steps, like slashing or maintaining record low interest rates, to shore up financial markets reeling from the coronavirus pandemic.

The yield on the 10-year China government bond last stood at 2.913% as of Friday afternoon Singapore time.

“You’ve got one of the highest nominal yields in the world and ... very, very importantly for bond investors, you’ve got one of the highest real yields in the world,” Briscoe, head of fixed income for Asia Pacific at UBS, told CNBC’s “Squawk Box Asia” on Friday.

Briscoe explained that a top concern for investors right now is offsetting risk assets. He asked, “With most bond markets close to zero or if not deeply negative in yields, where are you gonna go today?”

In comparison, the yield on the benchmark 10-year U.S. Treasury note stood at just 0.7019%. Over in Japan, the yield on the 10-year Japanese government bond was a dismal 0.011%, while the 10-year German bund yield sits in negative territory.

“The Chinese bond market, to us, looks like the standout bond market globally today,” Briscoe said.

Chinese government ‘more controlled’ than expected

Asked whether authorities in China have allowed companies to raise money too easily as they seek to spur the economy, Briscoe said: “This is the same story around the world wherever you go.”

“The U.S. has done exactly the same thing. Europe’s doing the same thing,” he said. “Every continent around the world is looking to making sure that these corporates can survive, they can open the doors again and then they get the workers back in and then start producing again.”

In fact, Briscoe added, the Chinese government has been “a lot more controlled” than expected. 

“You will see a buildup in debt here but you won’t see anything like what you’ve seen in Europe or the U.S. It’s a lot more balanced,” he said.

Historically, Briscoe said, a “huge buildup” would be observed in the shadow banking sector as well as a lot of infrastructure investment spending. “We half expected that in the early part of this, back in January and February. That would’ve been the playbook,” Briscoe said.

Originally posted on CNBC

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