Offshore yuan bond issuance seen cooling to a five-year low in 2016

PUBLISHED : Tuesday, 22 March, 2016, 4:46pm
UPDATED : Tuesday, 22 March, 2016, 5:27pm

Offshore yuan bond issuance in 2016 is expected to cool to its lowest level in five years, as more debt issuers look to China’s domestic bond market owing to lower funding costs and loosened regulatory measures, Standard Chartered Bank said on Tuesday.

The gross issuance of dim sum bonds, yuan-denominated bonds issued in Hong Kong, Formosa bonds, yuan bonds issued in Taiwan, and yuan-denominated certificates of deposit may reach 230 billion yuan (HK$275 billion) to 250 billion yuan in 2016, down 41 per cent to 46 per cent from total issuance of 425 billion yuan in 2015, Becky Liu, a senior rates strategist for Standard Chartered Bank said in a research report.

This will mark the lowest annual issuance size since 2011, she added.

The majority of issuances from mainland China-based entities are likely to continue to shift back to the domestic market because of lower funding costs.

Meanwhile, “bold regulatory revisions” by all key regulators since 2015 have made the domestic bond market much more accessible to Chinese companies.

“As such, onshore credit bond issuance increased 37 per cent in 2015, and the strong momentum continues,” Liu said.

In addition, foreigners could increase their issuance of bonds in mainland China owing to the expansion of the Panda bond programme, which allows entities registered overseas to issue onshore bonds.

Certificate of deposit issuance will also decline 41 per cent to 46 per cent from 2015 levels, due to negative offshore yuan asset growth and loose offshore yuan liquidity conditions, according to Standard Chartered.

The primary dim sum bond market has seen 37 billion yuan of gross issuance so far this year, against maturities of 86 billion yuan of bonds.

As a result, the outstanding amount of offshore yuan bonds had shrunk 6 per cent since the start of the year. Total issuance as of mid March amounted to 776 billion yuan

On rates strategies, the London-headquartered bank recommended “outright buying” of offshore yuan China government bonds across all key tenors, while expecting the other dim sum bonds to continue to rally.