Photographer: SeongJoon Cho/Bloomberg

Yuan's Turnaround Is Re-Heating Appetites for Dim Sum Bonds

Updated on
  • Worries over continual yuan depreciation had chilled market
  • Dim Sum offer way for investors to express views on yuan

Asia’s appetite for bonds is so big it even has a little space left over for Dim Sum.

Offshore yuan-denominated bonds, known as Dim Sum, became a lot less sought after in 2015, when a shock yuan devaluation rattled global markets and shattered the long-held view that China’s currency was headed ever higher. Dim Sum issuance collapsed, with even China’s Ministry of Finance cutting back its sales.

Now that the yuan is on the rise again, the Dim Sum market is coming back to life. Issuance so far this year stands at 20 billion yuan ($3 billion), less than a tenth of the peak of 228 billion in 2014, but analysts anticipate sales to grow -- even as the onshore Panda Bond market also expands thanks to a new trading connection with Hong Kong. Dim Sum securities could appeal to buyers still leery of China’s capital controls on the mainland.

“We expect a resurrection of Dim Sum from the steam cooker,” said Iris Pang, an economist at ING Groep NV in Hong Kong. “Potential demand comes from the expectation of yuan appreciation. Such demand might be reluctant about the onshore market, on worries the funds can’t in the end get out of the mainland,” she said.

Recent sales showcased foreign issuers’ interest in the market:

  • BMW Finance and BOC Aviation Ltd. both priced a three year bond on Wednesday.
  • Royal Bank of Canada raised 900 million yuan from a three-year bond, 
  • National Bank of Canada followed with its own three-year notes
  • The Philippines is exploring a potential issue, following a Panda bond sale.

The recent deals saw interest mainly from banks and fund managers in Asia, as well as some private bank clients from the region, according to Chao Li, head of Asia bond syndicate at Standard Chartered Plc, the lead manager on the two Canadian banks’ sales.

Renewed interest has been spurred by the performance of China’s currency. The yuan has been the top performing Asia currency over the past three months, according to data compiled by Bloomberg, with both the onshore and offshore yuan gaining more than 3 percent against the dollar.

Dim Sum bonds provide investors an “opportunity to express” their bullish views on the yuan, said Jean-Charles Sambor, deputy head of emerging markets debt at BNP Paribas Asset Management in London.

Accordingly, the issuance pipeline has been building up, says HSBC Holdings Plc, which has been one of the top arrangers of Dim Sum bonds.

“We are seeing renewed interest in the offshore yuan bond market,” said Timothy Yip, the Hong Kong-based head of cross-border yuan business at the bank. “Pockets of liquidity have been gradually building for quite some time and are looking for a home -- be it highly rated financial institutions or well-known, household multinationals which have ideally accessed this market before.”

— With assistance by Allen Yan

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