China’s government bonds outpaced their competitors in the first quarter, as their haven status helped them stand out as a bulwark amid the global slump. Japan’s securities led among developed nations, though still handing investors a narrow loss.
The two north Asian markets helped investors preserve value as signs of a burgeoning global recovery amid the rollout of vaccines pushed up debt yields around the world.
A Bloomberg Barclays index of global bonds slid 5.5 per cent in the first three months of the year — the worst quarter in four years.
China and Japan had another thing in their favour — they had the lowest volatility among 44 debt markets tracked by Bloomberg.
Chinese sovereign bonds rose 1 per cent in the first quarter, the only ones to rise among the 20 largest global debt markets, based on data on the Bloomberg Barclays indices.
Their lack of correlation with overseas bonds worked in their favour as it created an alternative for investors to park funds in, amid the debt sell-off.
The securities made the bulk of their quarterly gain in March, when they rose 0.9 per cent, as they bounced back from earlier weakness caused by concern about potential tighter funding.
“The debt tumbled too quickly before the Lunar New Year holiday, as traders bet the People’s Bank of China would tighten liquidity,” said Tommy Xie, head of Greater China research at Oversea-Chinese Banking Corp in Singapore.
“Now, with tighter monetary policy being priced in, the bonds have become resilient and steady.”
Japan’s bonds handed investors a loss of 0.4 per cent, but that put them comfortably at second spot. Declines were limited by the Bank of Japan’s commitment to keep yields low and stable. They were also supported by the nation’s superior external balance.
“Japan and China both have large current-account surpluses, which provide stable local funding for government expenditures and keep bond market volatility in check,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co in Tokyo.