Following an inversion of yield curve China’s 10-year bonds could be the “buy of the year” according to UBS’s Asia-Pacific fixed income head.
The yield on China’s 10-year bonds have fallen beneath those with 5-year maturities following a crackdown by financial regulators which has severely crimped liquidity.
Speaking to CNBC’s Squawk Box Hayden Briscoe, Head of Fixed Income APAC Asset Management, said that while the inverted yield-cover portends an economic slowdown for China, it presents an outstanding opportunity for investors.
Briscoe said that investors would have a “really nice opportunity” in the second half to add 10 year Chinese bonds to their portfolios have they endured a sell off brought about by constricted liquidity.
While an inverted yield curve usually spells economic slowdown, according to Briscoe the impact within China won’t be too acute as Beijing still has “the tools and flexibility to deal with any extreme slowdown.
While China has seen a surging in national debt levels from 152% of GDP in 2007 to 257% by end of 2016, Briscoe is sanguine about Beijing’s ability to deal with the situation, given ongoing efforts to deleverage the economy, as well as the country’s credit position.
“China is a net creditor nation and until somebody calls you on your capital it’s just like the Japanese situation, we’ve been waiting 20 – 30 years for them to implode,” said Briscoe. “Once you run out of capital then someone can all you on it and then you’re in big trouble, but until then they can kick the can down the road a bit further.”