Chinese government dim sum bonds worth US$1.1 billion snapped up by investors, thanks to the attractive yields on offer
- Wednesday’s issuance, comprising three tranches of two, three and five-year notes worth 2.5 billion yuan each, is the first of four scheduled for this year
- The five-year notes were the most in demand and were oversubscribed five times
Investors snapped up the biggest batch of offshore yuan Chinese government bonds of 2022, with the 7.5 billion yuan (US$1.1 billion) issuance by the ministry of finance receiving applications worth more than four times the amount of notes on offer.
Wednesday’s issuance, comprising three tranches of two, three and five-year notes worth 2.5 billion yuan each, is the first of four scheduled for this year. The ministry will issue notes worth a total of 23 billion yuan in the offshore yuan market in Hong Kong by the end of this year, its highest gross issuance since 2017.
“The demand we have seen is definitely higher than the previous ministry of finance dim sum bond issue last year. Investors were attracted by the higher yields offered by these bonds compared to their onshore peers,” Yim said.
The two-year tranche was priced at 2.44 per cent, the three-year tranche at 2.55 per cent and the five-year tranche at 2.75 per cent. Among the three, the five-year notes were the most in demand and were oversubscribed five times.
“The results of the ministry of finance bonds show that the demand for dim sum bonds is definitely there. This could in turn encourage more issuers, such as financial institutions and companies, to also tap funding through this market,” Yim said.
“Driven by the successful issuance of yuan government debt, the scale of Hong Kong’s yuan bond market … and the pool of yuan deposits will continue to expand,” Bank of Communications said in a press release. The bank, which is the issuing and lodging agent appointed to run the bond tender, said this should also help promote the gradual internationalisation of the yuan.
US bond yields have soared on expectations that the Federal Reserve will raise interest rates by as much as 75 basis points overnight on Wednesday, which would be its biggest hike in 28 years. The US central bank is gearing up its fight against inflation, which stood at 8.6 per cent in May, its highest level since the end of 1981.
“The fluctuation in US bond yields has not swayed demand for the offshore yuan bond market. Ultimately, investors’ demand for yuan assets is often driven by the need for products for different portfolios,” Yim said.