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Dim-sum bond returns cannot match the hype

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Investors' interest in offshore yuan bonds is holding up well so far this year but the average performance of the so-called 'dim sum' bonds has been disappointing.

According to an index compiled by Bank of China (HK), the average total return of yuan bonds was only 1.74 per cent so far this year.

The average yield rose to 3.63 per cent as of April 4 from the lows of 1.74 per cent in January.

The Bank of China yuan bond index tracks the daily interest and price changes of offshore yuan bonds with a minimum outstanding face value of 500 million yuan (HK$593.3 million).

However, analysts said it was a case of familiarity breeds contempt, and now that the novelty of the market was wearing off, investors were increasingly focusing on credit and liquidity risks.

There has been virtually no secondary trading in most of the bonds since the market started operating in July 2010, and a significant number of yuan bond issuers were not rated.

A report released by British bank RBS recently warned that yuan bond investors could be underestimating their credit exposure because credit risks had not been fully reflected in the 'exceedingly low yields' of offshore yuan bonds.

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