London’s nascent Renminbi market has made waves today after China issued its first sale of offshore government debt. London has been at the top of a very short list along with New York, Hong Kong, and Singapore looking to establish themselves as renminbi trading centers and beacons for the sale of government debt, a stance that was reflective of the high demand for the sale today after borrowing $457 million (RMB 3 billion).
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In particular, the finance ministry bond managed to draw orders of RMB 8.5 billion from multiple investors that were evenly split across Asia and Europe, the Middle East and Africa (EMEA), per a recent HSBC report.
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By extension, China’s ambitions to initiate its government’s debut in London, one of the premier financial centers in the world, was widely seen as a way to leverage overseas demand for Chinese assets following the recent currency devaluation and market convulsions that afflicted Chinese equity markets last summer. Indeed, as recently as January, Chinese markets recorded the largest monthly drop in shares in the past seven years.
As such, these sales are instrumental in recouping confidence in the Chinese bond market that has taken a hit recently. Despite notching a two-year rally in bond and fixed income markets, the country has faced concern and headwinds given rapidly rising yields – the successful sale of these bonds in areas such as London will go a long way in calming the nerves of investors.
The latest bond sale will mature in 2019 and was sold with a fixed coupon of 3.28% – as a means of comparison, this is approximately 5 basis points above the yield of existing 2019 offshore Chinese bond trades, as investors were not demanding a large premium to buy the new debt.
China’s bid to attract additional investment from international players has been successful thus far with London, Frankfurt, Paris and Luxembourg all looking to compete for the distinction as a western hub for offshore renminbi trades. However, given the sale today in London, the first offshore issuance of sovereign paper by China, it appears London may be off to an early lead.