Will Foreign Investors Sell Short-Term Bonds as the Fed Cuts Rates?

According to Huaxi Securities, yen carry trade refers to foreign investors borrowing yen and exchanging it for higher-yielding currencies like the dollar, benefiting from the interest rate differential and yen depreciation. Investing in Chinese bonds through forward rate agreements is a reverse trade that locks in forward exchange rates to secure excess swaps market spreads. Most of the existing transactions involving foreign institutions using forex swaps to lock in forward exchange rates to buy domestic bonds will remain unaffected. As the Fed enters a rate-cutting cycle, foreign investors are unlikely to start reducing their holdings of Chinese bonds.