Bonds. Chinese bonds.

21 December 2017 By Pete Sweeney Follow @petesweeneypro

A major index will include Chinese government bonds in 2018, dragging foreign money into a $9 trillion market. Beijing will appreciate the foreign stamp of approval. But sovereign guarantees will give scant cover against volatility spreading outwards from corporate credit.

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China’s benchmark 10-year government bond yield traded just shy of 4 percent in early December, up almost 100 basis points over the course of 2017. New government regulations cracking down on financial risk caused a selloff in both bonds and stocks.

In July, Hong Kong launched a “Bond Connect” scheme linking China’s bond market with overseas investors. Foreigners could already trade in the onshore interbank market which hosts the majority of transactions.

Foreigners held 574 billion yuan, or about $87 billion, of Chinese central government bonds in November, official data showed, up 35 percent year on year.

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