Yuan, Hong Kong dollar bonds surge as issuers seek cheaper funding amid rising US costs

Issuance of dim sum, panda and wonton bonds accelerates as Beijing promotes the yuan’s global use and deeper cross-border access broadens demand

Hong Kong and mainland China are set to see continued growth in bond issuance denominated in Hong Kong dollars or the yuan through the rest of the year, as issuers reduce their reliance on US dollar-denominated bonds and seek cheaper funding costs, according to a senior executive at Standard Chartered Bank.

“As US dollar funding costs have increased, many bond issuers” have been turning to bonds denominated in other currencies to secure lower borrowing costs, said David Yim Sau-king, head of debt capital markets for Greater China and north Asia at Standard Chartered Bank. “This trend would benefit yuan bonds and Hong Kong dollar bonds.”

The yield on the US 30-year Treasury bond reached 5.29 per cent last week, its highest level since 2007. By contrast, the yield on Chinese sovereign bonds was 2.18 per cent on Friday, near the lowest level in more than a year amid slower economic growth.

Previously, most international firms focused on issuing US-dollar-denominated bonds because bond markets denominated in other currencies were not sufficiently deep, Yim said.

The tide has turned in recent years, he said, as Beijing’s efforts to promote the internationalisation of the yuan have led more overseas companies to consider issuing yuan-denominated bonds this year.

Dim sum bonds, referring to offshore yuan-denominated bonds issued in Hong Kong or other overseas markets, reached 683.04 billion yuan (US$101.59 billion) in issuance this year as of August 14 – up 46 per cent, year on year, Yim said.