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Treasury & Capital Markets
Dim sum bond market poised for further growth
Lower financing costs fuel interest for issuers while investors seek diversification
Darryl Yu 11 Jun 2024

Notching up record activity in 2023, the dim sum bond market is expected to expand further this year, given the favourable market conditions amid the divergence in monetary policy between China and the United States.

Dim sum bonds are yuan-denominated bonds issued outside of mainland China and often listed in Hong Kong, which give international investors exposure to renminbi assets.

According to data from Dealogic, total dim sum bonds issued in the first five months of 2024 reached around 99 billion yuan (US$13.9 billion), less than the 143 billion yuan recorded in the same period in 2023, but significantly more than the 54 trillion yuan in 2022.  

The continued momentum in dim sum bond issuance is driven by several factors, including the relatively cheaper cost of financing for issuers compared to US dollar financing. Several issuers note that the cost of issuing dim sum bonds and swapping them back into USD is lower than directly issuing US dollar bonds. For international issuers, the dim sum bond market allows them to access offshore renminbi liquidity to finance their operations in mainland China.

“Dim sum bonds are likely to continue to grow in 2024 given that coupon rates of dim sum bonds are relatively lower than the coupon rates of US dollar bonds, not to mention growing interest from Chinese investors purchasing dim sum bonds through the southbound Bond Connect scheme,” says a comment from Baker McKenzie. 

Investors achieve diversification in view of the low correlation between the performance of renminbi bonds and other types of bonds. “China’s onshore renminbi bonds delivered a 4.8% total return in CNY as measured by the Bloomberg China Aggregate Index last year while returns of US and European government bonds were negative,” explains Raymond Gui, head of fixed income portfolio management, Asia, at UBS Asset Management. “The outperformance was accompanied by low correlation between RMB government bonds and DM government bonds. This welcome by-product, again of divergent interest rate cycles, makes RMB bonds a great addition to global fixed income portfolios for diversification and hedging purposes.”

Over the past 12 months, the dim sum bond market has seen several notable deals, the most recent being the Airport Authority of Hong Kong’s 1.5 billion yuan offering. The company’s debut in the offshore renminbi bond market saw an order book of 12.3 billion yuan at the final price guidance. In July 2023, Swire Properties, one of the most prominent property developers in Hong Kong, issued its inaugural 3.2 billion yuan green dim sum bonds, the largest corporate dim sum bond issuance since 2016.   

To learn more about the trends shaping China's bond market, be sure to check out The Asset Events' upcoming 19th Asia Bond Markets Summit - China Edition in Shenzhen on June 27, 2024. For more details on this summit please go here.

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