Dim-sum bond offer to central banks
China started tendering a record 23 billion yuan (HK$28.3 billion) worth of 'dim sum' bonds in Hong Kong yesterday. And, for the first time, it earmarked 2 billion yuan of the sovereign bonds for overseas central banks and monetary authorities, who will be able to buy them through the Hong Kong Monetary Authority (HKMA).
'We have been in touch with some central banks in the region,' HKMA deputy chief executive Peter Pang said. 'A couple have expressed interest.'
Opening up sovereign bonds to overseas central banks is a major step for Beijing as it seeks to make the yuan a reserve currency for other countries. Some 15.5 billion yuan of the bonds will also be offered to institutional investors.
Secretary for Financial Services and the Treasury Chan Ka-keung said the bond issue would strengthen the city as an offshore yuan trading centre. 'This is particularly significant for us because it will signify that Hong Kong will act as a gateway for Chinese sovereign bonds into overseas markets,' Chan said.
The offering is expected to find good demand, even though central banks prefer convertible currencies. 'This will change as some central banks want to have yuan sovereign bonds on hand,' Hang Seng Bank's Andrew Fung Hau-chung said.
Since 2009, China has gradually liberalised the currency to encourage companies to use the yuan for trade settlement or investment.
'With more overseas companies using the yuan instead of the US dollar to settle cross-border trade, it makes sense for central banks or monetary authorities in Asia or Western countries to add the yuan to their reserve investments,' Fung said.
Fung said institutional investors would like to invest in yuan sovereign bonds, but retail investors might be less keen because yuan appreciation had slowed this year.
'China's sovereign bonds' yield is not high,' First China Securities' Kenny Lee Yiu-sun said. 'The stock market has dropped so much recently that many retail investors are tempted to buy while it's cheap. The sovereign bonds don't look anywhere near as appealing.'