The size of the offering exceeded the 14 billion yuan bond sale in February and was the largest single batch of so-called Dim Sum bonds issued in Hong Kong by the ministry since October 2023, according to data compiled by Bloomberg.
“The ample liquidity in the offshore yuan market and likely still decent interest from investors via the Southbound Bond Connect, following the recent bull run in the onshore bond market, have likely buoyed the strong demand for the CNH Chinese government bonds, despite the larger issuance size,” said Jeffrey Zhang, a strategist at Credit Agricole CIB in Hong Kong.
The latest tranche of yuan bonds comes as China accelerates efforts to expand the currency’s global use, with its recent strength enhancing the appeal of local assets.
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The sale is expected to help rebalance offshore yuan liquidity, which has been flush in the offshore market. The three-month offshore yuan Hong Kong Interbank Offered Rate fell to a new record low this week.
“Yields are mostly in line with expectations, which were lower than at previous auctions as onshore yields had fallen,” said Frances Cheung, head of foreign exchange and rates strategy at Oversea-Chinese Banking Corp in Singapore. “The two-year yield at 1.32% compares favourably to its onshore counterpart" and some further short-term decline in offshore yields after the auction can’t be ruled out, she said.
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