Chinese Bonds
State-managed carry. Sovereign backing. Income while the equity regime wasn't ready.
The Thesis: State-Managed Carry
China has been deliberately managing its money supply for years — deflating carefully, avoiding the credit explosion that nearly destroyed Western banking in 2008. After the real estate crisis in 2021-2022, Beijing had to cut interest rates to prevent a hard landing. Rate cuts push bond prices up. The portfolio captured that move: Chinese government bonds with sovereign backing, in a deflationary-managed monetary regime, with a state that has both the will and the capacity to honor its debt.
This was income with downside protection. Not exciting. Exactly right.
Why Bonds Over Equities
In January 2023, Chinese equities were cheap — but uncertain. The regulatory crackdowns of 2021, the zero-COVID lockdowns, and the real estate overhang had created a market where the downside was hard to quantify. Chinese bonds had none of that uncertainty. The sovereign does not default on its own currency debt. The rate trajectory was visible. The carry was positive.
Equities required a growth thesis. Bonds required only a stability thesis. In 2023, stability was the right bet.
The Exit
By late 2024, Chinese interest rates had fallen so far that the carry was no longer meaningful. And the same government that had depressed rates was now actively pushing citizens and institutions to put money into equities — launching incentive programs for domestic stock investment.
When the sovereign signals it wants capital to move from bonds to equities, the bonds become the wrong instrument. Time to switch. CNYB delivered exactly what it was designed to: stable carry income for two years. When its job was done, the capital moved into Asia ex-Japan equities.