This time last year China’s nascent dim sum bond market was a roaring success story, but how has the market fared over the last 12 months?
Dim sum bonds are bonds denominated in the Chinese renminbi, or yuan, but issued outside of the Chinese mainland. They’re also known as CNH bonds—CNH is the symbol for renminbi traded outside of China.
“During the first half of the year, when the renminbi was depreciating against the U.S. [dollar], demand for dim sum bonds fell,” says Ashish Malhotra, head of Asia Pacific debt syndicate at Bank of America Merrill Lynch. “On the supply side, CNH cross-currency swap levels were low, which meant that the price of borrowing remained higher than in U.S. dollars for foreign issuers. At the same time, rates were being cut onshore, lowering the incentive of onshore borrowers to issue in CNH.”
There are signs that this may have been a temporary setback, however. Issuance has begun to rise in the last couple of months. “Since August, we have seen the market pick up again as the CNH has begun to appreciate against the U.S. dollar and CNH cross-currency swap levels have risen on higher inflationary concerns,” Malhotra says. With issuance so far this year exceeding 64 billion renminbi ($10.2 billion), the total for 2012 could still exceed the 2011 figure.