Strong Dim Sum Bonds Issuance Signals Acceptance Of China’s RMB

The dim sum bond market will grow significantly over the medium- to long-term as global investors increasingly accept the RMB as a major global asset and trading currency, Fitch Ratings forecasts in a report.

A record US$10.8 billion dim sum bonds were issued in the first quarter this year, more than double the US$4.2 billion issued during the first quarter of 2013.

Total outstanding dim sum bonds, bonds that are issued outside of China but denominated in the Chinese currency RMB, now exceed US$64 billion since the first dim sum bonds were issued by China Development Bank in 2007.

The strong dim sum bond performance this year, against a weakening RMB, is evidence of increasing global acceptance of the Chinese currency. The growth continued during April, despite the RMB’s 3.4% depreciation against the U.S. dollar during the first four months of 2014.

Even though dim sum bond issuance was driven by China-based financial institutions and state-owned enterprises during the first quarter, global investors now view exposure to the RMB as an integral part of their portfolio diversification strategies to hedge against rises in U.S. treasury yields or emerging market volatility, according to the Fitch report.

In addition, dim sum bonds also offer higher yields relative to comparatively rated U.S. dollar denominated bonds, which make them attractive to global investors.

China Expert network