China chalks up symbolic victory by persuading World Bank to issue low-yield SDR bonds
Commercial investors unlikely to show much interest due to the low yield
The World Bank will next week launch a bond in China which is denominated in the International Monetary Fund’s special drawing rights (SDR) and can be repaid in Chinese renminbi.
The first of its kind, the bond comes ahead of the Chinese central government hosting a gathering of the leaders of the world’s 20 largest economies.
“The bond issuance comes at a time when China is about to host the G20 and when the yuan is about to become part of the SDR,” said David Yim, head of debt capital markets, Greater China for Standard Chartered.
However, the bond, which will be issued in China’s onshore interbank bond market, may initially only attract official buyers such as central banks as the low yield, its small size and the depreciating value of yuan seems likely to limit interest from other investors.
The bond, which Bloomberg reports is to be issued on August 31, will be the first SDR denominated bond for 30 years. The first batch will have a three-year maturity with a face value of 500 million SDR units – one unit approximately equals US$1.40 – and will be repaid in yuan. The SDR bonds will carry a coupon rate of between 0.3 per cent and 0.6 per cent, Reuters reported.
The yuan will be officially included in the SDR basket of the International Monetary Fund on October 1 this year. SDRs are monetary units issued by the IMF and are held by its member states as part of their currency reserves. Their value is determined by a weighted currency basket composed of, at present, the US dollar, the euro, the yen and the British pound.