China

DBS Bank’s Chinese branch is set to follow Mizuho Corporate Bank (China) into the onshore renminbi bond market this week, making its debut with a Rmb500m ($79.6m) three year deal.

It has been a barnstorming start to the year for Asia’s local currency bond markets. But the risk of foreign investors dumping their holdings puts the performance of Asian local markets into doubt for the rest of the year.

The amount of dim sum debt issued this year could easily pass the US$30 billion mark, more than double 2011’s total volume of US$14 billion, predicts the private bank.

The City of London Corporation’s Stuart Fraser tells Asiamoney PLUS that London has no plans to establish an onshore clearing bank, ensuring the city will continue to clear its renminbi through Hong Kong.

The offshore renminbi bond market is set to greatly expand in terms of diversity of issuer and transaction, making it a must-watch area for all fixed income investors positioning themselves to ride Asia Pacific growth, said Chia Liang Lian, head of Asian fixed income at Western Asset

Borrowers should take advantage of Asia’s increasingly liquid bond markets, especially those denominated in CNH, Singapore dollars and Thai baht, says the UK bank.

The yields for offshore renminbi bonds from state-run companies will remain markedly wider than Chinese government bonds due to rising levels of supply.

The UK bank faced pressure from China’s central bank to ensure it sold its London-listed dim sum bond issue to as many European investors as possible as the nation aims to internationalise its currency.

Creating a CNT market for Taiwan is fully justified on economic grounds as the nation’s ties with China are substantial, both in trade and foreign direct investment, says the Spanish bank.

Top 3 Offshore RMB DCM Transactions - 2012 YTD

The appreciation of the renminbi has been a big driver of dim sum bond buying since the market opened less than two years ago, but increasing doubts about the rise of the currency have made investors more and more focused on yields. But there is still room for the currency to go up, according to Brian Jackson, a senior strategist at RBC Capital Markets.

China has allowed the World Bank to invest in the country’s domestic bond market, the latest small step in the mainland government’s attempt to develop its local capital market.