China Construction Bank Expects $7 Billion SDR Bond Market

Updated on
  • World Bank issues 500 million SDR units of three-year notes
  • Market making for the debt to improve, Construction Bank says

China Construction Bank Corp. forecasts bonds denominated in Special Drawing Rights will swell to 5 billion SDR units ($7 billion) in the nation in the next few years, after the world’s first sale of such debt in three decades.

The World Bank issued 500 million SDR units ($698 million) of three-year notes in China’s interbank market this week, the first sale of debt in the International Monetary Fund’s alternative reserve assets since the 1980s. They were priced to yield 0.49 percent, according to Xie Duo, the secretary general at the National Association of Financial Market Institutional Investors.

“It is a milestone for renminbi internationalization,” said Wang Yong, general manager at the investment banking arm of China Construction Bank in Beijing. The bank ranked second in arranging all onshore yuan corporate bonds this year, and ranked first for non-financial local notes, according to data compiled by Bloomberg. “We expect more issuers to follow and the market making for such instruments in the secondary market will improve,” he said, referring to SDR notes.

The Chinese government has been promoting greater international use of the yuan to challenge the hegemony of the dollar and from Oct. 1 its currency will be included in the basket used to calculate the value of the SDR. Major Chinese financial institutions have expressed interest in selling SDR bonds, Yi Gang, the deputy governor at China’s central bank, said in an Aug. 15 briefing. 

SDR notes will help avoid foreign exchange and interest risk stemming from assets denominated in a single currency, and will diversify asset allocation for domestic and international investors, the People’s Bank of China said in August.

The ideal investors in SDR bonds would be central banks and sovereign wealth funds that already conduct business using the reserve asset, Wang said.

Xinhua News Agency dubbed the debt Mulan bonds, and said a "much bigger wave" of issuance would follow. The World Bank offering drew 50 institutions including banks, brokerages and insurers, according to a Wednesday statement on the central bank’s website.

— With assistance by Xize Kang, Heng Xie, and Lianting Tu

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