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

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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, says Bank of Communications. Photo: KY Cheng

Published: 8:21pm, 15 Jun 2022Updated: 9:24pm, 15 Jun 2022

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.

Both mainland Chinese and foreign investors, including banks and asset managers and central banks, had submitted bids for the bonds, according to David Yim, regional head of capital markets for Greater China and North Asia at Standard Chartered. Altogether they have applied for a total of 34.4 billion yuan of the offshore yuan bonds, which are also called dim sum bonds.

“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.

Headquarters of the People’s Bank of China in Beijing. Photo: Reuters

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.

Government dim sum bonds are trading at a yield premium of 25 basis points to 45 basis points compared to their onshore peers, according to a recent research note by Standard Chartered. Such a premium is due to the ample liquidity conditions onshore, which have sent onshore yields lower compared to their offshore peers, Yim said.