Emerging Markets

Here They Come: Fixed Income Investors Snap Up China's "Panda Bonds"

Tom Burroughes Group Editor 30 September 2015

Here They Come: Fixed Income Investors Snap Up China's

A new term is being added to investors' vocabularies as a result of China's continued drive to open up its capital markets - the Panda bond.

The financial services industry likes its nicknames. We have had the Mexican “Tequila” crisis of the 1990s, the “tech wreck” at the end of that decade, not to mention those BRICs, credit crunches and Grexits. From Asia, the terms proliferate: home to the phenomenon of the “Dim Sum bond” and the "Masala bond", there is now the rise of the “Panda bond”.

A Panda bond is a renminbi-denominated bond issued by a non-Chinese issuer in China’s mainland domestic market. (A Dim Sum bond is an offshore bond denominated in the Chinese currency but issued outside the country.) Panda bonds have been around for almost exactly a decade – the first were reportedly issued as far back as October 2005 – but the market has opened up in recent weeks amid a liberalisation of the country’s capital markets and as that country tries to make its currency more internationally desirable.
Yesterday, Bank of China (Hong Kong) said it had issued three-year Panda bonds, saying these were the “first by an international commercial bank in the mainland domestic interbank bond market”. Some RMB 1 billion bonds received “overwhelming response and recorded over-subscription”; tota subscriptions were more than RMB 1.8 billion. The bonds carry a coupon rate of 3.5 per cent per annum. 

BOCHK won approval from the People’s Bank of China on 22 September to issue financial bonds of not more than RMB 10 billion in the mainland interbank bond market and the bank said that issuance limit is so far the largest granted to international commercial banks in the mainland domestic market.

A report by Reuters a few days’ ago noted that the desire by China to open up the Panda bond market come at a time when worries about a Chinese economic slowdown have pushed up bond yields on offshore renminbi bonds, or Dim Sum bonds. China’s lowering of interest rates has hit returns on domestic debt, increasing attractions of borrowing in the onshore market; the news service said that international firms have expressed interest in the Pand bond market.

After getting started in 2005, the Panda bond market has been quiet, but a combination of forces, even if temporary, could see a burst of issuance in this area of the global debt market. So investors had better get used to another term cropping up in the financial lexicon in the next few weeks and months.


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