Global funds have flocked to Chinese yuan bonds.
The Chinese Ministry of Finance issued 15 billion yuan in offshore yuan-denominated bonds in Hong Kong on August 5, achieving a high subscription rate of 4.67 times, according to the China Securities Journal on August 6.
The bonds included 5 billion yuan maturing in two years, 4 billion yuan maturing in three years, 4 billion yuan maturing in five years, 1 billion yuan maturing in 15 years, and 1 billion yuan maturing in 30 years. The interest rates were set at 1.27% for the two-year bonds, 1.30% for the three-year bonds, 1.43% for the five-year bonds, 1.99% for the 15-year bonds, and 2.24% for the 30-year bonds. All but the 30-year bonds had interest rates in the 1% range.
These rates are significantly low. As of August 5, the yield on U.S. 10-year Treasury bonds was 4.60%, South Korea's was 4.13%, and Japan's was 2.81%. Even China's 30-year bonds had lower yields than Japan's 10-year bonds.
Despite the low rates, the strong demand can be attributed to the abundant offshore yuan liquidity in Hong Kong. As of the end of May, offshore yuan deposits in Hong Kong reached a record 1.13 trillion yuan, and the yuan clearing volume in June increased to 53.2 trillion yuan, surpassing that of Hong Kong and U.S. dollars. With an increasing amount of yuan seeking investment opportunities, bonds issued by the creditworthy Chinese government are seen as a relatively safe option.
China's regular bond issuance and its aim to develop yuan bonds as a benchmark are also considered factors contributing to the strong interest. Last year, China issued 68 billion yuan in offshore yuan bonds in Hong Kong. This year, it plans to issue 84 billion yuan in bonds over six rounds. As the liquidity of Chinese government bonds increases, they are expected to establish themselves as a benchmark. Once they become a benchmark, they can be used as hedging instruments or included in indices, leading to increased demand. The high subscription rate reflects expectations that the prices of Chinese government bonds will rise in the future.
In line with the yuan internationalization policy, there are analyses suggesting that foreign central banks and sovereign wealth funds are increasing their holdings of yuan assets to diversify their foreign exchange reserves.
Pang Ming, a researcher at the China Chief Economist Forum, stated, "The four rounds of yuan bond issuance this year have all received enthusiastic responses, indicating that the status of yuan assets as safe assets is rising. The attractiveness of the yuan as a global reserve currency is increasing, and the internationalization of the yuan will continue to progress steadily."
* This article has been translated by AI.
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