Foreign investors are besotted with Chinese government bonds. Falling yields across the US and Europe have driven new demand for China’s central government and local government debt alike. But the higher yielding investments are riskier than they might appear.

Offshore funds rushing into renminbi denominated Chinese government bonds reached a record Rmb4.3tn ($619bn) in the second quarter of the year. Interest in local government bonds is equally high. Issuance of local bonds has surged 50 per cent so far in 2020 to Rmb3.3tn.

On the face of things there is little reason not to sign up. The yield on 10-year Chinese government bonds is just shy of 3 per cent. Compare that with 0.59 per cent for US Treasuries of the same maturity. For equity investors, the bonds, the prices of which have declined, have also worked in effect as a hedge amid a rally in the Chinese stock market this year.