Several banks in Hong Kong said retail investor appetite for China's sovereign debt issue was weaker than last year, partly reflecting expectations that the yuan's appreciation is likely to slow.
Beijing issued 23 billion yuan (HK$28.23 billion) of sovereign bonds in Hong Kong on Thursday, with 5.5 billion yuan earmarked for retail investors, with a two-year tenor at an annual interest rate of 2.38 per cent, comfortably higher than deposit interest rates.
But Standard Chartered and Citic Bank International said investors' response was weaker than last year, although Citic Bank International predicted that subscription rates would probably pick up next week.
A Standard Chartered spokesperson said the long weekend to mark the anniversary of Hong Kong's return to Chinese rule could have sidelined some investors - along with a typhoon signal that was hoisted yesterday. But economists also said yuan jitters were a key consideration.
'A major reason people are less excited is because they are less confident that the yuan will continue to appreciate strongly,' said Nathan Chow, an economist at DBS, adding that the bond had to compete with other yuan investment products.
Standard Chartered economists said this month that the yuan was likely to depreciate against the US dollar this year due to weakening economic growth at home and slumping exports.
This year's retail interest rate set at 2.38 per cent was much higher than last year's. The Ministry of Finance issued five billion yuan worth of two-year bonds to retail investors in Hong Kong at a coupon rate of 1.6 per cent last year. In general, dim sum bonds - yuan-denominated bonds offered in Hong Kong - had an average yield of 5.6 per cent in May, according to Bank of China data. DBS and HSBC said retail subscription amounts were still close to last year's.
For institutional investors, 15.5 billion yuan worth of bonds were offered, attracting subscriptions of about 58.6 billion yuan, more than three times the issue size. Another two billion yuan of bonds was earmarked for central banks as China tries to internationalise the yuan and make it a reserve currency.
China issued six billion yuan of yuan-denominated treasury bonds in Hong Kong in 2009, eight billion yuan in 2010 and 20 billion yuan last year. The offshore yuan bond market was launched in 2007 when Beijing permitted mainland-based financial institutions to issue yuan bonds in Hong Kong. As of April this year, the total amount of yuan bonds issued in Hong Kong was 218.4 billion yuan, according to the Hong Kong Monetary Authority (HKMA).
Yuan deposits in Hong Kong have dropped for five straight months, to 552.4 billion yuan by the end of April, from 627.3 billion in November.
Authorities have been working to increase the yuan's profile as Beijing edges closer to full convertibility longer term. Earlier this month, the HKMA said it had teamed up with Euroclear Bank and JPMorgan to launch a cross-border platform to make it easier for international banks to tap yuan funds in the city.
Dim sum bonds had an average yield of this much in May, according to Bank of China data