China’s deleveraging campaign has foreign investors flocking to the nation’s short-term bank debt, according to Bloomberg. A sell-off in the country’s onshore bonds last month – triggered by signs that policy makers are determined to rein in speculative borrowing – encouraged foreign investors to home in on a particular slice of the market that might insulate them from turmoil. They’re called negotiable certificates of deposit – securities based on a deposit by one bank into another. Mainly issued by small and medium-sized banks, they are short-dated, so bear less credit risk. Overseas holdings of NCDs jumped nearly six-fold in the two months through September, vastly outpacing the 18% gain for the overall onshore bond market, according to official data. And the debt may only get more appealing through the year-end, with rates likely to rise thanks to seasonal dynamics. NCDs have surged as smaller lenders found it hard to raise funds through other methods thanks to increased regulation of the shadow-banking industry.
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