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Next big thing in government bonds: China?

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Forget those periodic fears about the size of China's holdings of U.S. Treasurys. Now, some managers are pointing to buying China's government bonds as the next big play.

"You're talking about the third largest bond market in the world and effectively the world has zero allocation," Hayden Briscoe, director of Asia-Pacific fixed income at AllianceBernstein (AB), told CNBC. "This is a market that's under-researched and it needs to get into peoples portfolios." Read More US ETFs to take aim at China's onshore bond market It's a turnabout from regularly appearing concerns about China's large holdings of U.S. government debt. The mainland is currently the largest foreign holder with $1.27 trillion worth of Treasurys (U.S.:US10Y) at the end of September, or around 7 percent of the total.

Briscoe noted that China's 10-year bond yields around 3.60 percent after rallying around 100 basis points so far this year, compared with the U.S. 10-year Treasury yielding around 2.3 percent after rallying around 70 basis points over the same period. That also compares with lower-rated Portugal's 10-year bond yielding around 3.1 percent and Spain's (Spain:ES10Y-ES) at around 2.1 percent.

He expects the bond prices, which move inversely to yields, to rise further.

Read More China debt fix is 'short-term pain, long-term gain' "There's going to be a big shift when that currency opens up, when it goes into everybody's indexes," he said, noting this week's opening of the Hong Kong-Shanghai stock connect allowing cross-trading of equities on the two exchanges is a big step to internationalizing the Chinese currency.

But are China's government bonds really as safe as other countries'? "[It] sounds like a pretty safe place -- with a AA rating -- to me, relative to a peripheral European bonds under-yielding," Briscoe said, noting that China is also the second-largest creditor nation and it has $4 trillion of foreign exchange reserves.

"The most conservative investors in the world -- the central banks -- are saying they're going to put anywhere from 5-25 percent of their foreign exchange reserves into Chinese government bonds," he added.

Read More China-Hong Kong stock link could spur buying To be sure, not everyone believes China's bonds are a good bet.

A higher yield doesn't necessarily mean the investment will pay off in the long run, Nizam Idris, head of strategy for fixed income at Macquarie (ASX:MQG-AU), said, citing the growth and inflation outlook.

In September, China's inflation slowed to 1.6 percent on-year, the slowest since 2010, suggesting the economy there may be losing momentum.

"For locals, clearly it's too expensive. Basically they're not getting paid for their investment," Idris said. While foreigners can pick up the yield differential and some potential appreciation of the Chinese currency (Exchange:CNY=), "you want to look at other factors like the growth rate, which is slowing down, and more pressure on the government to use fiscal measures to support the economy and also the eventual move to liberalize interest rates domestically." Read More China's offshore debt market not yet a global play He believes that would make China government bond yields look too expensive.

Others are looking to gains in China's corporate bond market.

"Corporate bond yields traded on China's interbank market have already fallen back to levels prior to the PBOC's (People's Bank of China) massive crackdown on the shadow banking industry in June of 2013," Steve Wang, chief China economist at Reorient Research, said in a note earlier this month. "Yields across AAA to AA-rated bonds are now roughly 200bps lower in comparison with the start of 2014 and could easily go lower as the PBOC boosts monetary support." But Wang sees that as a buy signal for China equities, rather than bonds.

"Lower yields on corporate bonds mean it will be easier for companies to issue bonds to fund projects or simply roll over maturing loans," Wang said, adding this is a critical element to boost economic growth.

-By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1