The Chinese government's fourth sale of yuan-denominated sovereign bonds in Hong Kong this year was vastly overbought, as investors rushed to take advantage of the yield gap with the mainland through a transborder investment channel with the city.

The 9 billion yuan (US$1.3 billion) tranche of bonds, offered with tenures of two years, three years and 10 years, attracted 30.4 billion yuan of bids from investors, according to the Hong Kong branch of Bank of Communications (Bocom), the sole agent of the sale.

The yield on the so-called dim sum bonds were 1.9 per cent, 2 per cent and 2.38 per cent respectively, the Ministry of Finance said in a separate statement in Beijing.

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"Amid the current volatile interest rate environment, the yuan has become an important choice for international investors for its stability and resilience," said Bocom, the sole sales agent for 15 consecutive years. "This successful issuance reflects international investors' recognition in China's sovereign creditworthiness as well as their confidence in the sustainable and stable growth of Hong Kong economy."

The uptake augurs well for the finance ministry, which has announced its plan to sell six batches of bonds to raise 55 billion yuan this year in Hong Kong. The government raised 12 billion yuan in March, 11 billion yuan in June and 9 billion yuan last month.

The sale is another step towards the global use of the yuan, also called the renminbi, which catapulted to become the fifth member of the Special Drawing Rights (SDR) of the International Monetary Fund in October 2016, alongside the US dollar, the euro, the yen and the pound sterling.

The SDR is an international currency reserve created by the IMF in 1969 to promote trade, increase liquidity and supplement member countries' official reserves during financial crises.

Institutional investors have tendered for the treasury bonds via the electronic platform called Central Moneymarkets Unit, run by the Hong Kong Monetary Authority (HKMA), the city's de facto central bank.

Many investors from mainland China have poured into the bonds via the so-called Southbound Connect transborder investment channel with Hong Kong.

"Global institutional investors and certain central banks will invest in China's sovereign bonds for the benefit of diversification", said Wilson Chan Fung-cheung, the associate director of City University's MBA programme. "Hong Kong has successfully sold the Ministry of Finance bonds for 15 years, and international investors take Hong Kong as the centre of these offerings. This has strengthened Hong Kong as the global offshore yuan trading centre."



Tom Chan Pak-lam, the permanent honorary president of the Institute of Securities Dealers, said the Ministry of Finance bond offering in Hong Kong indicates the country's support for the city's role as an international financial centre.

"It is positive for Hong Kong as the connector between China and the world", Chan said. "The HKMA has done a lot to promote the internationalisation of the yuan and the sovereign bond offerings are part of the process."

The Ministry of Finance has steadily increased the size of its issuance in Hong Kong and their frequency since the first debt was sold in 2009, Bocom said, adding that these offerings "improve the benchmark yield curve and help promote yuan internationalisation in a steady, prudent and solid manner."

Besides the sovereign bonds, China's provincial authorities are also planning to issue yuan offshore notes in Hong Kong.

Guangdong province last month said it is looking to issue up to 7.5 billion yuan of offshore yuan bonds in Hong Kong and Macau this year, following Shenzhen's announcement to issue up to 7 billion yuan of dim sum bonds in Hong Kong soon.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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