Dim sum yields match Shanghai's on freer yuan flow
Central bank measures to ease curbs on capital flows have helped to shrink the interest-rate difference between Hong Kong and the mainland
Dim sum bonds have become more attractive to investors as interest rates on offer in Hong Kong are now close to, or even higher than, those available on the mainland.
The discount for three-month interbank rates in Hong Kong against that in Shanghai has fallen to a record low of 19 basis points from February's high of 324. The three-year sovereign yields 50 basis points less offshore. The yield on Haitong Securities' dim sum notes due in 2017 is 5.56 per cent, 74 basis points above that for similar securities in Shanghai.
"Yields on dim sum bonds have become more attractive," said Ben Yuen, Hong Kong-based head of fixed income at BOCHK Asset Management. "Investors used to prefer onshore bonds because of the wide interest-rate differentials, but now the gap has greatly narrowed. Some of the bonds by the same issuers now even trade at higher yields in the dim sum market."
The interest-rate gap between Hong Kong and the mainland is narrowing as the central government eases curbs on capital flows with measures including the stock through-train connecting the Hong Kong and Shanghai exchanges. HSBC, the top dim sum bond underwriter, forecasts as much as 520 billion yuan (HK$651 billion) of offshore yuan bond sales next year, down from 554 billion yuan so far this year.
Global investors, attracted to the mainland's domestic bond markets because of higher yields, can purchase onshore securities through the quota-based renminbi qualified foreign institutional investor programme. Hong Kong has already exhausted its 270 billion yuan of RQFII allocations. Britain, Singapore, France, South Korea, Germany, Qatar, Canada and Australia have a total of 500 billion yuan in quotas. RQFII allows yuan raised abroad to be invested in mainland securities.
Beijing has appointed 12 yuan clearing banks across the world, with locations ranging from Singapore and London to Toronto. Britain sold the first non-Chinese sovereign dim sum bonds in October, indicating that it is including yuan in its foreign-exchange reserves.
The yuan's appeal would increase if the International Monetary Fund endorsed it as a global reserve currency late next year, HSBC said. DBS said there was a "very high chance" that would happen.