Higher rates to push yuan bond sales
Updated: 2014-11-22 07:01
By Emma Dai in Hong Kong(HK Edition)
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Despite the prospect of rising bank interest rates and an appreciating US dollar, the new renminbi sovereign bond offered for public subscription in Hong Kong is expected to receive a warm welcome by local investors, investment analysts said.
"We expect the new bond to be well received by Hong Kong investors," said Gary Leung Wai-kei, head of treasury product management at Bank of China (Hong Kong) Ltd. The coupon rate is higher than that for the batch offered last year, he said, noting that the yuan has remained strong.
The issuer has also simplified the application procedure to attract potential investors, analysts said. Another big boost, they said, could come from the removal of the 20,000-yuan daily conversion limit, allowing Hong Kong investors to park a greater proportion of their savings in renminbi fixed-interest securities.
The Ministry of Finance is offering three billion yuan two-year bonds with a coupon rate of 2.93 percent a year for Hong Kong residents, with a minimum amount of 10,000 yuan to be purchased. The coupon rate for the previous batch was set at 2.8 percent. The offer is valid until Dec 5.
"There could be more big-ticket bookings this year," Leung said, adding that the removal of the currency conversion cap has stimulated Hong Kong investors' "passion" for the renminbi.
"This week, the average amount of daily yuan conversions is 5.5 times higher than last week's. I believe some of the new yuan positions will be deployed to buying mainland sovereign bonds," he said.
Since the removal of the yuan conversion cap, banks in Hong Kong have been offering attractive terms to lure renminbi deposits. Many of them have been offering over 3 percent annualized interest rates for various yuan deposits since Nov 10. Some structural deposits carry return rates as high as 7 percent a year.
"We believe the recent high yuan deposit rates are only temporary. They have already begun to come down in the past couple of days," said Arthur Lau, head of fixed income of Asia-ex-Japan at PineBridge Investments. "In the longer term, I don't think Hong Kong banks need to compete with each other for yuan liquidity," he said.
Yuan bonds issued by mainland entities, commonly known as "dim sum" bonds, "are an attractive asset class given the deep yuan pool we have here. We need more investment channels," Lau added.
Although the coupon rate is lower than expected, "the mainland sovereign bonds are still a good offer if one is prepared to hold them till maturity in two years," said Dariusz Kowalczyk, a senior economist and strategist of Asia-ex Japan at Credit Agricole.
"The credit is sound and the return is certainly higher than Hong Kong dollar assets," he said. "What's more, we expect the yuan to appreciate by another 2 percent in 2015, even against a strengthening US dollar," he added.
(HK Edition 11/22/2014 page7)