Bond Market Shifts Towards Yuan and HKD as US Dollar Costs Rise

The bond market is shifting towards cheaper funding options as issuers seek to reduce their reliance on US dollar-denominated bonds. According to David Yim Sau-king, head of debt capital markets for Greater China and north Asia at Standard Chartered Bank, the increased US dollar funding costs have led many bond issuers to turn to other currencies for lower borrowing costs.

The yield on the US 30-year Treasury bond reached its highest level since 2007 at 5.29 per cent last week, while Chinese sovereign bonds had a yield of 2.18 per cent on Friday, near the lowest level in over a year due to slower economic growth. This disparity has led some issuers to consider issuing yuan-denominated bonds.

Beijing's efforts to promote the internationalisation of the yuan have contributed to this trend. As a result, 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 by August 14, a year-on-year increase of 46 per cent.