BlackRock’s China bond ETF is reaping the rewards of inflationary pressures across developed markets as investors continue their rotation out of US and European bond strategies.

According to data from Ultumus, the $8.6bn iShares China CNY Bond UCITS ETF (CNYB) saw $669m inflows in the week to 26 February, the most across all European-listed ETFs.

The inflows into CNYB comes amid market jitters about the potential impact of a spike in inflation over the next six months as US President Joe Biden presses ahead with his $1.9trn stimulus package and the Federal Reserve maintains an accommodative monetary policy.

As a result, US 10-year Treasury yields shot up 20 basis points last Thursday as investors fled US and European bond ETFs.

Europe bond ETF exodus as inflation spikes at fastest rate in a decade

Meanwhile, investors looking east see the China debt market offering greater stability against a backdrop of stable policy and a faster economic recovery.

The disparity between US and China government bonds is evidenced further when one compares movements in their respective yields over the trailing three-month period. While US 10-year Treasury yields ranged from less than 0.9% to more than 1.5% between the start of December and the end of February, China 10-year government bonds stayed within a range of 3.1% and 3.4%.

This comparison is likely to become starker this week with speeches from European Central Bank President Christine Lagarde and members of the US Federal Reserve, the ECB releasing bond-buying data, and the next OPEC meeting on Thursday, all likely to offer food for thought for fixed income investors.

However, the rotation out of western bond markets may calm as inflation pressures subside. Rupert Thompson, chief investment officer at wealth management company, Kingswood, predicted the pick-up in western yields may continue but at a steadier trajectory.

Thompson said: “We expect bond yields to continue to trend higher but, crucially for equities, believe further increases will be considerably slower. A strong rebound in growth and a sharp but temporary pick-up in inflation, on the back of the rebound in oil prices, should continue to push yields higher.

Furthermore, Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said a global trend towards higher inflation would also affect China fixed income strategies.

“Yields are pretty attractive for a government strategy ETF but if rates shoot up globally, this trade could lose its appeal.” Psarofagis noted.

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