Barclays Sees Threefold Jump in Offshore Yuan-Products Trading

Trading volume in yuan-denominated products outside China will jump three-fold this year, driven by expectations the renminbi will strengthen, according to Barclays Capital.

Average daily volume of offshore yuan products may reach $1.5 billion by the end of 2011 from $500 million at the end of last year, according to Patrick Law, the Hong Kong-based head of emerging-market rates trading for Greater China at the bank. Turnover averaged $800 million last month, he estimated in an e- mail to Bloomberg News yesterday.

The renminbi will strengthen 3.9 percent against the dollar by year-end, according to a Bloomberg survey. Appetite for yuan- denominated assets has increased in Hong Kong, where bank deposits in the currency have quadrupled to a record 408 billion yuan ($62.3 billion) since June. Such deposits earn an annual rate of 0.629 percent at Bank of China Hong Kong Ltd., while yuan bonds in Hong Kong yield 1.935 percent on average, according to data compiled by HSBC Holdings Plc.

The yuan rose 0.05 percent to 6.5447 as of 12:15 p.m. in Shanghai, according to the China Foreign Exchange Trade System. It reached 6.5443 earlier, the strongest level since the country unified official and market exchange rates at the end of 1993.

Barclays expanded its foreign exchange trading capability this week, enabling its clients to trade yuan-deliverable spot, forwards and swaps against Asian and Group of 10 nations’ currencies on its platform, it said in a statement. It will also offer secondary trading of dim sum bonds.

The U.K.’s third-largest lender expects the pool of liquidity generated by the bank to drive efficiency and help develop the offshore renminbi markets, Jim Iorio, head of foreign-exchange distribution for Asia Pacific, said in the statement.

Sales of so-called dim sum bonds totaled 18.2 billion yuan in the first quarter, according to data compiled by Bloomberg. That compared with 25 billion yuan in the fourth quarter of last year and 10.7 billion yuan in the third quarter.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.