NewYuan bonds issued in Taiwan surge; China to allow mainland firms to issue bonds in Taiwan

Issuance of formosa bonds - yuan-denominated bonds issued in Taiwan - has surged this year thanks to strong demand for yuan assets and relaxed regulations.

"Renminbi funds here are increasing and investors want to seek better investment tools than low-yielding bonds denominated in Taiwan dollars," said Penny Chen, a fixed-income fund manager at Manulife Asset Management in Taiwan.

Chinese regulators will allow mainland financial institutions to directly issue bonds in Taiwan, two people with direct knowledge of the matter told Reuters, in another step to towards deepening the pool of offshore yuan in Taiwan and reinforce financial relationships between Beijing and Taipei.

Under previous regulations, only foreign branches of mainland financial institutions were allowed to issue yuan-denominated bonds, which acted as a limit on the size of issuance. Now yuan bonds can be issued and backed directly by mainland banks, some of the world’s largest financial institutions by market capitalisation.

China Development Bank plans to issue yuan bonds in Taiwan by the end of the year, according to four people.

Taipei Exchange Chairman Wu Soushan told Reuters in an interview that Taiwan’s Chinese yuan bond market will likely reach 35 billion yuan (US$5.66 billion) in 2015, above the 30 billion yuan forecast earlier, on expectations of further easing of rules governing mainland firms issuing debt overseas.