Europe Investors Buy Just 1% of Chinese Bank's London Yuan Bonds

  • China Construction Bank sold 1 billion yuan of 4.3% notes
  • Sale comes ahead of President Xi's visit to U.K. next week

China Construction Bank Corp. sold 1 billion yuan ($158 million) of Dim Sum bonds in London but only 1 percent of the buyers are from Europe.

Investors from Asia took up 99 percent of the issuance, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified. The two-year notes were priced to yield 4.3 percent on Tuesday, the person said.

The sale comes ahead of President Xi Jinping’s U.K. visit next week and as China steps up efforts to win the yuan reserve-currency status at the International Monetary Fund. A devaluation in August sent the currency into its biggest tumble in two decades and prompted analysts from Standard Chartered Plc to Commerzbank AG to cut their yuan forecasts.

“European investor sentiment on the yuan hasn’t recovered since the devaluation,” said Tommy Ong, managing director for treasury and markets at DBS Group Holdings Ltd. in Hong Kong.

The yuan will decline to 6.45 per dollar by the end of the year, a 1.8 percent drop from Tuesday’s level, according to the median estimate in a Bloomberg survey. Pacific Investment Management Co., which has $1.52 trillion in assets, said this month the currency is poised to weaken another 7 percent.

London plays a vital role in boosting global yuan usage because it’s the biggest offshore center for the currency in Europe, according to the Society for Worldwide Interbank Financial Telecommunications. In August, the yuan became the fourth most-used currency in global payments with a 2.79 percent share, surpassing the Japanese yen.

The average yield on offshore yuan bonds has surged 64 basis points this year and touched an all-time high of 5.97 percent on Sept. 7, according to an index compiled by Deutsche Bank AG. The rate was 5.34 percent on Monday.

The People’s Bank of China will sell as much as 5 billion yuan of one-year bonds in London in less than a month, marking its first such offering outside the country, two people familiar with the matter said last week.

The sales have “more to do with testing the ground,” said Li Liuyang, a Shanghai-based chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.

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