24 April 2019
Clifford Lee, head of the fixed income division at DBS Bank, said the growth rate of the offshore renminbi bond market has become more sustainable.
Clifford Lee, head of the fixed income division at DBS Bank, said the growth rate of the offshore renminbi bond market has become more sustainable.

Offshore RMB market to grow 20% in 2014, DBS says

The offshore renminbi bond market is likely to maintain its growth momentum and increase by 20 percent this year and in 2014 as investors expect the interest rates in the United States will stabilize, according to a senior executive at DBS Bank.

The Federal Open Market Committee’s (FOMC) decision on Sept. 18 to continue with its debt purchasing program has helped stabilize the Asian debt market with the treasury yield moderating after a very fearful, bearish situation, Clifford Lee, head of the bank’s fixed income division, said in a phone interview with EJ Insight.

“A lot of US dollar bonds have come alive very quickly, so have the renminbi bonds,” Lee said. With stabilized market rates, some investment-grade companies can now issue yuan-denominated bonds, he said.

On Oct. 2, British oil and gas group BP Plc sold a five-year renminbi bond of 1.2 billion yuan (US$195.8 million) at an annual yield of 3.95 percent.

Offshore renminbi bond issuance has amounted to 203 billion yuan (US$33.1 billion) so far this year, exceeding the 173 billion yuan for the entire 2012, Lee said, citing data from Bloomberg. The number of deals stood at 499, also surpassing last year’s 453.

According to Thomson Reuters, offshore bonds issued and settled in renminbi grew 7.8 percent to 131.3 billion yuan in the nine months to September from a year ago. The number of deals was up 18.5 percent at 307.

The offshore renminbi bond market is likely to grow about 17 to 20 percent in 2014, the same pace as this year, Lee said. “If the market continues at such pace consecutively for five years, its size will be doubled.”

However, the market is not likely to repeat the irrational spike witnessed in the first half of 2011, which was supported by the renminbi’s strong appreciation, he said. The currency’s appreciation is less of a factor now when people consider bond pricing and offering.

“Players in the renminbi bond markets have gone through an over-bullish period in early 2011, followed by an over-bearish period in the second half of the same year,” Lee said. But the growth rate has moderated and become more sustainable, he said.

US debt ceiling

By the end of this year, the Asian debt markets will probably remain choppy amid uncertainties over when the US will start tapering its quantitative easing, the DBS Bank executive said.

Markets are now focused on the US debt ceiling crisis, which will be handled by Congress next week, Lee said. Also, another FOMC meeting will be held on Oct. 23 and 24, creating volatility in interest rates.

Hopefully, the bond markets will stabilize once the Fed gives a clearer picture of its tapering plan, he said.

The uncertainty over the US tapering suppressed the growth of the renminbi bond markets in Singapore between May and August, although Industrial and Commercial Bank of China Ltd. (01398.HK, 601398.HK) started providing renminbi clearing services in May, Lee said.

The sole renminbi clearing bank in Singapore is holding talks with the three largest local banks on launching yuan-denominated interest and exchange rate products, Luo Xi, senior executive vice president of ICBC, said in a speech in a forum organized by DBS Bank in Singapore on July 5.

It will take two to three more years for Singapore banks to create a yield curve as a benchmark for pricing renminbi bonds, Lee said. The offshore renminbi Hong Kong Interbank Offered Rate (CNH-Hibor), or its interest rate swap (IRS), has yet to serve as a benchmark for the market due to the lack of diversification of bonds issued with different maturities and yields.

“People don’t quote their renminbi bonds with a swap plus spread,” Lee said. It is still very much an all-yield-driven market that banks have to price the bonds with the track record of previous issuers in the same sector, he said.

In June, the Treasury Markets Association launched its CNH-Hibor fixing regime, which is calculated from rates contributed by 15 to 18 reference banks.

– Contact the reporter at [email protected]


Clifford Lee, head of the fixed income division at DBS Bank, said the growth rate of the offshore renminbi bond market has become more sustainable.

Chief reporter at EJ Insight

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