UBS(US:UBS) Hua Er Jie Jian Wen·2025-08-13 12:27Core Insights - The Chinese onshore RMB bond market has rapidly developed into the world's second-largest bond market, following the United States, yet many international investors remain unaware of this fact [2][5] - The low correlation and low volatility of the Chinese bond market are key reasons for its appeal to international investors, making it an important candidate for non-USD asset allocation [1][5][8] Market Size and Growth - Over the past decade, the Chinese bond market has grown from less than 10 trillion RMB to approximately 25 trillion RMB, reflecting strong vitality and vast growth potential [2][5] - The market is primarily composed of two segments: interest rate bonds, which account for about two-thirds, and credit bonds, which make up about one-third [2] Foreign Investment Trends - The inclusion of Chinese bonds in major global bond indices has significantly increased their weight from around 6% to nearly 10%, enhancing their share in global fixed income asset allocation [3][4] - Foreign holdings of Chinese bonds rose from approximately 200 billion USD in early 2018 to 600 billion USD by 2022, indicating a notable shift in asset allocation [4] Market Accessibility - Since the opening of the interbank bond market (CIBM) in 2016, foreign investment channels have become increasingly convenient, with the introduction of "Bond Connect" and the gradual removal of investment quotas [2][5] Risk and Return Characteristics - The Chinese bond market has maintained a low volatility level of about 2%, significantly lower than the 6% to 8% range seen in developed markets, indicating reduced market drawdown risk [7] - The total return performance of the Chinese RMB bond market has consistently achieved positive returns over the past five years, even outperforming U.S. bonds when considering currency factors [7] Non-USD Asset Allocation - Increasing global economic and geopolitical uncertainties have led international investors to diversify away from USD assets, with RMB assets, particularly bonds and stocks, becoming a natural allocation direction [8] - Recent surveys indicate that many central banks are increasing their holdings of RMB and Euro assets, further confirming the deepening trend of non-USD asset allocation [8]