Dim sum bond yields fell to a six-month low as the mainland's surprisingly rapid loosening of exchange- and interest-rate controls spurred demand for yuan assets.
The average yield on offshore yuan-denominated notes in Hong Kong dropped 53 basis points this quarter to 3.73 per cent as of Friday, after a decline of 80 basis points in the July-September period, according to the Deutsche Bank S&P/DB Orbit Index. Rates on Asian local-currency debt are climbing for a third quarter, HSBC data shows.
The yuan rose to the strongest level in 20 years on Monday on signs the Communist Party is already delivering on its November pledge to give markets a more "decisive" role in the economy. Bank of China started free convertibility in special accounts in Shanghai's free-trade zone on Thursday, three days after the central bank proposed the step.
On Sunday, regulators allowed trading of negotiable certificates of deposit that will rival state-set savings rates. "The new leadership is very determined to push forward with economic reforms," said Ken Hu, chief investment officer at BOCHK Asset Management. "There's global demand for renminbi investments."
Shanghai's free-trade zone registered 89 foreign companies and 1,690 domestic firms by the end of November, Shanghai Administration for Industry and Commerce data shows. Bank of China said on Thursday that it conducted the city's first cross-border two-way yuan business for a trade firm in the zone, while Bank of Communications said the same day that it agreed to offer an e-commerce company 100 million yuan (HK$126.8 million) in offshore lending.
The People's Bank of China is opening up the mainland's capital markets as Beijing bolsters the international use of the yuan in global trade and investment. The PBOC's Shanghai branch aimed to implement most of the goals set out for the city's free-trade zone in three months, deputy director Zhang Xin said last week.
The average yield of Asian local-currency bonds has risen every quarter since the end of March to 4.33 per cent yesterday, an HSBC index showed.
"The zone is a liberalised part of the onshore system that will gradually be expanded to the rest of the mainland," Dariusz Kowalczyk, a strategist at Credit Agricole CIB, wrote in a report on Monday.
The PBOC raised the yuan's reference rate by 0.17 per cent to 6.1130 per US dollar on Monday.